Tax Time as a Freelancer

I never thought I’d see the day when I wrote about income tax, but it seems many people are unaware of the benefits working freelance has when it comes to write-offs. Especially if you’re working from home. While I didn’t exactly have a smile on my face when I left the accountant last week, I was pleased with the deductions I was able to make this year. I’m sure things are different from province-to-province, and definitely country-to-country. But that’s why it’s best to go and talk to an account who’s versed in the freelance world and can help you bring down your total taxable income as much as possible. I really had no idea the amount of things I could write-off until I went and spoke to someone, and highly recommend anyone working freelance does the same. You’ll likely be surprised!

How Write-offs Work

It took me a while to really grasp how you write things off, and when you actually save money. It’s not until you file your income tax that you get a break on the purchases you’ve made, and to sum it up – you take your total net income and subtract your deductibles. The new total is your taxable income. The more you spend, the less tax you have to pay. But at the same time, depending on the tax bracket you’re in, you’re spending a dollar to save 30-40 cents.

What You Can Write-off

There’s a great deal of things you can claim as tax write-offs, some of which are quite obvious. Others, likely not. Personally, I work from home and don’t do any traveling for business purposes. So I’m not able to write-off a percentage of my vehicle or gas expenses, as I otherwise would if I frequently had to travel to meet with clients. Some of the obvious deductibles that apply to freelance web design and development include…

  • Computer Hardware
    desktop computer, laptop computer, monitor, etc.
  • Computer Peripherals
    keyboards, mice, speakers, printers, external storage drives, etc.
  • Computer Software
    OS upgrades, any apps specific to your work
  • Web Services
    web hosting, domain registration, project management, invoicing, client management, etc.
  • Office Furniture
    desk, desk chair, lighting, bookcases, end tables, lounge chair, etc.
  • Office Supplies
    writing utensils, paper, ink, etc.
  • Continued Learning
    magazine subscriptions, courses, seminars, conferences, etc.
  • Self Promotion
    any kind of advertising – print or web, business cards, stationary, etc.
  • Sub-Contracting
    anyone you hire to help with your work

And the not-so-obvious…

  • Utilities
    percentage of rent/mortgage, electricity, gas, water, phone, mobile phone, cable, internet, etc.
  • Dental & Medical
    regular dental visits, fillings, repairs, prescription drugs, hospital rooms, etc.
  • Travel Expenses
    car payments, gas, hotels, dining
  • Moving Expenses
    hired movers, truck and equipment rentals, etc.

Again, deductibles will vary depending on your profession and your position – whether you work from home or not. As a freelance web designer working from home, I’m able to take advantage of about 90% of the write-offs mentioned above.

Aside from these things, you’ll also catch a break the more dependents you have. Since I have a small family of my own, I get a few thousand taken off the top right out of the gate. I believe in total, my deductions this year were about $8,000.

Preparing for the Accountant

The worst thing you can do, is go to your accountant with a stack of receipts and invoices. Take a few hours and get yourself organized. Your accountant doesn’t actually need to see every single receipt and invoice you have, but you do need record of everything. As a general rule, I don’t write anything off unless I have proof of purchase.

What I have found that works well, is coming up with summary lists for my accountant. I categorize my income and expenses and present her with lists of each, so she can see breakdowns without having to page through invoices and receipts, and has quick access to total amounts. This past year, I was in and out within half an hour and it cost me just over $100 for her time. Where as, had I gone in unprepared, it would have taken significantly longer and cost much more.

Hopefully this helps to shed some light for those not in the know. And perhaps even entice some who have been on the fence about freelancing. If I missed anything significant, do let me know by leaving a comment.