Lots of freelancers feel overwhelmed by deductions because there are so many to keep track of. I feel you. Halfway through writing this post I was like, “Whooooaaa! So.many.deductions.” *insert brain spin*
Which is why I wrote this monster post. There ARE so many deductions for self employed folks and it’s easy to feel overwhelmed and shut down when trying to sort through them all. The result? Missed deductions. And that’s never fun.
A few things about this cheat sheet- first, you might not have deductions in every single category. Businesses vary based on industry and every industry has it’s own expenses. I still recommend you read through the whole cheat sheet- you never know what you might be missing!
Second, some of the categories overlap. You may think, “Huh- but that one sounds like one I already read about.” It’s true, some of these categories don’t have a clear defining line between them.
If you are confused, or have an expense that kinda goes in one but kinda goes in another, the best thing to do it keep track of it (just pick one category to track it in) and then talk to a tax professional about where is the best place to put it.
Finally, you may notice areas in which you tax person told you you cannot take deductions. LISTEN TO YOUR TAX PROFESSIONAL (yes, I am yelling that one). Your tax person knows best.
And, of course, this: This post is meant for educational and informational purposes. It is meant as a starting point. It is not tax, legal, or financial advice. Always consult your tax professional before filing your taxes.
Now, my self-employed friends, your cheat sheet (and don’t forget to download the PDF version that has space for you to match your expenses with your deductions):
Advertising and Promotion:
Everything you spend on promoting and marketing your business. I like to break it down into these sub-categories:
Marketing- anything you spend to market your business
Example: Facebook ads, Google Adwords, Mailchimp, ConvertKit, Print ads, ads on sites specific to your industry
Promotional- anything you print that promotes your business
Example: Business cards, flyers, pens, merchandise with your logo on it
Website- anything you spend on your website related to your business
Example: Domains, hosting, themes, plugins, Squarespace, Wix
You can write off travel with your car for business purposes but, this is a biggie, you cannot write off travel to and from your home and primary place of business.
If you work from home you won’t need to worry about this. If you have an office outside of your home, all the travel between your home and your office is not deducible. Travel from your office to a client’s office or client meeting is deductible.
There are two ways to take auto deductions.
Standard Mileage Deduction: The IRS sets the rate every year. It’s pretty simple- keep track of your business mileage and you get to deduct those miles multipled by the standard rate (usually around 58 cents per mile).
If you are taking the standard mileage deduction, there are still a few car related expenses you get to write off:
Parking & Tolls
Registration fees & licenses
Actual Expenses of Your Car: The portion you take is determined by the percentage of the time you use your car for business. You still need to track you miles, both your total miles for the year (take an odometer reading on January 1st and December 31st) and your business mileage. Divide your business miles by your total mileage and- voila- you have your business use percentage.
You then write off this percentage of the actual costs of your car, including:
Repairs & Maintenance
Example: New tires, taking it to the shop, car washes (within reason)
Registration fees & licenses
Parking & Tolls
Fees you incur on your BUSINESS accounts. I like to break it down like this:
Bank service fees: Fees from your business bank account
Example: Monthly service fee, ATM fees, wire transfer fee
Credit Card fees: Fees from your business credit card
Example: Annual credit card fee, Late Payment Fees
Business Licenses and Permits:
Any license or permit you need to own to operate your business. This will vary by your industry. For some this will be as simple as a business license. For others, there may be special permits and additional licensing involved in operating their business.
Donations to a 501(c)3 non-profit go here. An organization must have 501(c)3 status to count. If you give $50 to your friend’s surgery fund, even though it is in the charitable spirit, you cannot claim it as a deduction.
Besides cash donations, you can also deduct the expenses related to volunteer service. For example, you volunteer a Saturday to teach children art at a non-profit education center. You buy supplies for the class. You can deduct the supplies. You can also deduct the mileage to the center, although the rate is lower than the standard business mileage rate.
This category comes up most for therapists and people who are in helping professions that consult with other professionals about their clients. Anyone you pay to consult with about your business or clients goes here. This category overlaps with a few others (like Professional Development and Legal and Professional Fees).
Cost of Goods Sold:
This is the cost you pay to product physical items your sell. This can range from the raw materials to packaging supplies. It can be as simple as buying a book that you resell on your website (the initial $10 you pay for the book is your Cost of Goods Sold) to breaking down all the materials that go into an item you produce.
Example (if you make bracelets): Beads, clasps, chain, jump rings, wire, canvas bag for packaging
Dues & Subscriptions:
This category encompasses professional dues you pay to organizations and associations in your industry. For example, if you are life coach and pay dues to the International Coaching Federation, that would go here.
The subscription part of this category refers to professional journals you subscribe to for your industry.
My most favorite category! I typically break it down like this:
Books & Research Materials- Educational materials you use for your business
Example: Printed books, ebooks, audio books, magazines, newspapers
Professional Development- This one is really really really dependent on your industry. It’s sort of a catch all for activities that inform you on your industry or business but aren’t books or workshops.
For example, a hair stylist goes to a hair show to check out the season’s new dos and pays $20 for the ticket. There is definitely an educational element to this expense, however, it is neither a book or a workshop. What is it? Professional development!
Example: Lectures, talks, educational events, industry specific events, professionals you pay in your industry to experience their services (i.e. you are a massage therapist and get a massage from someone well known in a specific technique)
Workshops & Trainings- Any training or workshop you take that benefits your business. Keep in mind it doesn’t have to be just about your industry. For example, a yoga teacher writes off a workshops on Facebook Ads because they use (or plan to use) those ads in their business.
If you are in a profession that requires CEUs, you can write off non-CEU and CEU workshops here. The IRS doesn’t care about your industry requirements- it cares if it is a legit business expenses.
Example: In person trainings, online workshops, online courses, tele-classes
If you rent equipment as part of your business operations or services, you can write it off. You cannot write off personal equipment rentals. If you rent a carpet cleaner for you apartment- don’t put it here.
What can you put here? You are a landscaper and rent a lawnmower for a job. You are an event planner and rent a generator for a party. You restore furniture and rent a- errrrrrrrr tool of some sort– to restore a couch.
Example: Tools, machinery
Any gifts you buy clients or colleagues can be deducted. Perhaps you buy your clients a small thank you gift or send gifts as a thank you to a colleague for a referral. It’s deductible!
However, the IRS has strict rules about this. You are only allowed to deduct $25 per person, per year in gifts.
This is a tricky category. You can write off a portion of your home if (and only if) you use a portion of it exclusively and regularly for business.
If you use your dining room table as a desk during the day, that is not exclusive business use. If you use your living room once to host a business party, that is not regular or exclusive use. If you use a second bedroom as an office every day, that is exclusive and regular use.
If you are considering writing off a portion of your home be sure you talk to your tax professional. The IRS is very finicky about this category so you want sound tax advice before proceeding.
This category is referring to business insurance, not your health insurance! The most common deduction here is liability insurance or any insurance you are required to have by your industry.
Any interest you pay on BUSINESS debts. I repeat- any interest you pay on BUSINESS debts. If you take out a business loan you can write off the interest. You can also write off your credit card interest for business credit cards.
If you use a card for both business and personal purposes you cannot write off the interest. This is one of the reasons it is so important to have separate cards for your personal and business expenses.
Legal & Professional Fees:
You can write off anyone you pay for professional consultation or work for your business. This is one of those categories that overlaps with others (Consultation, Professional Development, Subcontractor).
The most common deductions here are legal consult and fees, accounting, bookkeeping, and tax preparation fees.
Everyone’s favorite category! This deduction is for meals that have a specific business purpose.
Here are the most common types of business meals:
Eating out with colleagues & you talk about your business (you must pay for the entire meal)
Meals with a consultant who you have or may hire for a specific service (you must pay for the entire meal)
Taking someone out for a meal because they referred you to someone (you must pay for the entire meal)
Meals with clients (you must pay for the entire meal)
Meals while traveling for business purposes
Keep in mind, you can only deduct 50% of this category! That means, if you go out for a $500 meal, the deductible portion is only $250.
Also know that the 2018 tax bill eliminated client entertainment as a tax deduction. That means that you can no longer write off taking your client out to events, like the ballet or a baseball game.
Merchant Processing Fees:
All those fees you pay to process credit cards you can write off! I’m referring to the 2.7 – 4% that goes to your processor and is often deducted from your income before it lands in your bank account. Yup- it’s deductible.
Example: Fees from Square, Stripe, and PayPal
This is the easiest category for folks to wrap their head around. I guess many of us used to work in offices so we can identify what offices expense are.
If you work from home, regardless of if you are taking a home office deduction or not, you can still write off your office expenses. I break them down like this:
Equipment: any large equipment purchased for office use
Example: Copier, computer, printer, laptop, camera
Postage & Delivery: any shipping or postage costs
Printing: printing and copying cost for general office use
Example: Having thank you cards or branded stationary printed
Software: one time or online subscription services
Example: Dropbox, Google Apps, QuickBooks Online, Evernote
Supplies: general office supplies for day to day operations
Example: Paper, pens, ink, file folders
This one is pretty straight forward- it’s any space you rent for your business! One thing to keep in mind is that it doesn’t have to be somewhere you use all the time. So if you rent a space twice a year for a meeting, you can still write it off here!
Repairs & Maintenance:
Any repairs or maintenance expenses you pay for your business space can be deducted. This can range from major construction to monthly cleaning.
Anyone you pay to perform a service for your business that is not an employee is a subcontractor. The good news is that you can write off these services! The bad news is, if you pay them more than $600, you are required to file a 1099 (see my post The 1099 Decoded for an explanation on how to do this).
Subcontractors come in all shapes and sizes- they can be folks you pay once for a project or someone you pay regularly.
Example: Graphic designer, photographer, web designer, virtual assistant, bookkeeper, software developer
This is the most commonly missed deduction for self-employed people. You can write off a portion of your cell phone bill! How much? That depends on you. What percentage of the time do you use your phone for business use? Most people write off 50-70% depending on their industry.
Also, if you have a separate office with a telephone, you can write that off here.
Travel is defined by the IRS as the following: away from your tax home (where you live), overnight, and for the purpose of conducting business activities. If you got those covered then you can write off your business trip! Here’s what you get to deduct:
Airfare: Includes the price of the ticket and baggage fees
Ground Transportation: How you get around on your trip!
Example: taxis, Lyft, Uber, public transportation, shuttles
Lodging: Where you lay your pretty head at night. This doesn’t have to be a hotel, you can also write off an Air BnB or VRBO
Local Travel: Okay, this category actually doesn’t have to do with out of town travel. It has to do with traveling in your local area. This is any service you pay for to get from your place of business to another place to conduct business activities, like a meeting or to provide a service.
Example: Taxis, Lyft, Uber, public transportation
Travel Meals: Yup, whatever you eat while away on business travel is deductible. Buuuuuut- you still only get 50% of this category. Bummer, I know.
Uniforms & Clothing:
Originally I wasn’t going to include this because it is so rare that people can write this off but then I decided to include it for educational purposes.
Uniforms and clothing does not refer to the clothes you buy to wear to business meetings. If you buy a new suit to wear for a meeting or speaking event, can you write it off? No. No. And NO.
The IRS rule is if you can wear it as streetwear (in everyday life) you cannot write it off. Even if you are buying it for a specific business event, you cannot write it off. Even if you are required to wear it for some specific business event (like you are required to wear black pants and a white tee), you cannot write it off.
People who can write off uniforms and clothing are buying items that are:
Protective or safety gear (nurses scrubs)
Theatrical or stage clothing (Opera costume)
Special uniforms you are required to wear (flight attendant outfit or the Hot Dog on a Stick uniform)
Generally, you aren’t going to have a uniforms and clothing write off. If you think you do, talk to a tax professional. This one is a big red flag so you want to be absolutely sure you are allowed the write off.
Do you pay for utilities in your office space? How about for internet? You can write those off!
Example: Electricity, water, garbage, security system, internet
Even though this list is really long, there are actually even more deductions you can take! What are they? I don’t know! Okay, I do sort of know but these are deductions that are specific to your business or industry so it is impossible to make a list of them.
For example, a salon owner will have salon supplies while a circus performer will have costumes. A fitness instructor can write off music and sports equipment while an acupuncturist will write off medical supplies.
Every business is different so it’s important to really think through everything you spend money on for your business. This post has a super helpful worksheet that helps you create your own Deduction Roadmap.
What do you need to feel comfortable with you deductions? Make a list.
Now spend 10 minutes creatively brainstorming what you can do to meet those needs. Pick the action you are most drawn to and the action you are most resistant to. Make a plan do those actions in the next week.