Job-Related Tax Deductions for Freelancers: What You Can Claim in 2018
Whether you’re new to freelancing or have made your living as a self-employed worker for years, there are changes to small business tax deductions for 2018 that everyone needs to understand. The Tax Cuts and Jobs Act has significantly changed the U.S. tax code. The expenses you can claim on your taxes as a freelancer have changed as a result. Freelancers need to understand the new pass-through tax deduction and how it impacts their 2018 income tax return, as well as changes to what self-employed workers can and can’t claim as business expenses on their taxes. If you don’t learn the new tax laws, you might pay more money than you need to on your income taxes.
These topics will make you an expert on job-related tax deductions for freelancers:
NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
What Job Related Expenses Can Freelancers Claim in 2020?
Under the Tax Cuts and Jobs Act, some of the tax deductions that everyone, including freelancers and small business owners previously enjoyed are no longer available. Here are some of the tax deductions you may have claimed in the past, but can’t claim on your 2018 tax return:
- Home office expenses: If you’re a freelancer who works from a home office, you can write off home office expenses, including a portion of your rent or mortgage, utilities and home repairs.
- Internet and phone: If you use your home internet and phone for business, you can deduct the expense for tax purposes. Just be sure you’re only claiming the portion of the bill that you use for work. For example, if half of your home internet use is dedicated to your work, then you can claim 50 percent of your internet bill for tax purposes.
- Travel costs and mileage: When you travel for business reasons, you can deduct the cost of flights, hotels, car rentals, meals, tips and more. If you drive your own vehicle for a work trip, you can deduct the cost of gas and mileage.
- Education and training: The cost of any courses, certificates, workshops or conferences can be considered work related expenses for freelancers, as long as the information taught directly relates to your business activities.
- Business meals: Freelancers can claim 50 percent of the cost of work-related meals with clients on their tax return. Just make sure to keep receipts and detailed notes of who you’re meeting with, when the meeting took place and what was discussed over the meal.
- Equipment and supplies: Freelancers can claim expenses related to business equipment and supplies. This can include computers, printers, software related to your job, paper, pens and more.
- Self-employment tax: Freelancers pay more toward their Medicare and Social Security insurance than regular employees do, because employers cover half the cost of those payments for traditional workers. To make up for that disparity, freelancers can claim half the cost of the self-employment tax when they file their income tax return.
This article provides even more insight on small business and self-employed tax deductions.
What Tax Deductions Can Freelancers No Longer Claim in 2018?
Under the Tax Cuts and Jobs Act, some of the tax deductions that freelancers and small businesses previously enjoyed are no longer available. Here are some of the tax deductions you may have claimed in the past, but can’t claim on your 2018 tax return:
1. Moving Expenses
If you moved in 2018 and had planned on claiming related expenses on your income tax return, unfortunately you’re out of luck. The moving expense deductions were eliminated after 2017 for all self-employed workers. The only exception is for members of the armed forces, who can still claim moving expenses.
2. Personal and Dependency Deductions
Because the standard deduction for small business income tax has been lifted to 20 percent, the personal and dependency deductions that were available in previous years have been eliminated. Before 2018, self-employed workers could claim up to $4,050 for personal and dependency exemptions.
3. Unlimited State and Local Deductions
In previous years, there was no limit to the state and local tax deductions you could claim on your income tax as a freelancer. That changes in 2018. Now, you can only claim state and local tax deductions up to a maximum of $10,000.
4. Unrestricted Home Equity Loan Interest Deductions
Previously, the deductions you could claim on the interest you pay toward a home equity loan were unrestricted. But in 2018, you can only claim those interest payments if you took out the loan to cover home improvements.
5. Professional Dues
Previously, freelance workers were able to claim the full amount they paid for professional dues on their income taxes. Professional dues include union dues, bar dues and membership fees for trade and professional associations. In 2018, you can no longer claim these expenses.
6. Reduced Mortgage Interest Deduction
In 2018, there’s a reduction the amount of mortgage interest payments you can claim on your taxes. In previous years, you could deduct the interest on as much as $1 million in mortgage debt. In 2018, the maximum mortgage debt is lowered to $750,000.
What Is the Pass-Through Tax Deduction?
The pass-through tax deduction is a new tax cut available to small businesses and freelancers on their 2018 tax filing. It’s also known as the Qualified Business Income Deduction or the IRS Section 199A deduction. It applies to households that receive pass-through income from their small businesses, including sole proprietorships, LLCs, partnerships and S corporations. Pass-through income refers to business earnings that aren’t taxed at the corporate tax rate, but instead, the income passes through to the small business owner’s personal income tax return.
The pass-through income tax deduction allows freelancers and other small business owners to exclude as much as 20 percent of pass-through business income from federal income tax. That can add up to a huge savings for many small businesses.
Who Qualifies for the Pass-Through Deduction?
There are limits and exclusions in terms of who qualifies for the pass-through tax deduction. Certain service-based businesses, such as accounting firms, medical practices and law firms, aren’t eligible for the deduction.
The benefit also doesn’t apply to certain high-income earners: if your yearly taxable income as a single freelancer is more than $157,500 or more than $315,000 if you’re married, you might not be eligible for the deduction.