Tax deductions for the self-employed: What should you deduct in 2022?
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Tax season is here and as you prepare, make sure you don’t forget about the many tax deductions you can take advantage of. With all the changes to tax laws in 2021, you’ll need to review what types of credits you can earn as a self-employed freelancer or business owner.
As a positive, most of what the IRS added has made previous deductions better. As a negative, several of these add-ons are temporary. But while they’re here, you should make the most of it.
10 of the best tax deductions for freelancers
There are many valuable tax deductions for independent contractors, freelancers and the self-employed who file using a 1099-NEC template. Here are X tax deductions to remember.
1. Home office deductions
Freelancers can deduct a portion of their rent, property taxes, repairs, maintenance, cost of utilities, and similar expenses. These deductions are only available to people who are self-employed. Remote employees cannot deduct a specific percentage from their homes.
2. Health insurance deductions
If you bought medical insurance policies on your own for yourself or your family, you may be able to deduct your medical and dental insurance premiums. Long-term care insurance premiums count under this tax, but they’re subjected to IRS Publication 535 rules.
3. Vehicle use deductions
Anytime you use your vehicle specifically for business, you can deduct 58.5 cents for every mile driven. To ensure you’re safe from an IRS audit, keep a mileage log filled with dates and times. You can also recoup some of the losses you incurred from wear and tear, oil usage, and more.
4. Continuing education deductions
Self-employed business owners can deduct any expense related to education as long its purpose is to improve the skills you need to operate. You can deduct books, lab feed, tuition, transportation to class, and supplies. This deduction is also applicable to online courses.
5. Retirement savings deductions
If you have a solo 401(k), be sure to max out your contribution, if possible. Every dollar you put into your retirement savings account reduces your taxable income. That means if you put $20,000 in your 401(k), you could save almost $3,000 when you file your taxes.
6. Business insurance premiums deduction
Buying business insurance doesn’t just protect your company; it also safeguards your wallet. It’s possible you could deduct all of your business insurance premiums at tax time, but you have to make sure you’re deducting the right thing. Refer to IRS Publication 535 to keep the audit away.
7. Loan and credit card interest deductions
Freelancers who use their credit cards or loans for business expenses can deduct the interest they incur. If you don’t have a separate business loan or credit card, you’ll need to be clear which transactions were personal. Even with this deduction, it’s still cheaper to not incur interest.
8. Office supplies deductions
The everyday items you use in your business could be deducted from your taxes. Office supplies, like staples, pens, postage, paper, and similar items, are deductible as long as they’re likely to be used in your industry. For example, a publishing company can write off ink.
9. Business meals and travel deductions
In 2021 and 2022, IRS Publication 463 allows freelancers to deduct 100% of their food and beverage costs as long as they’re business-related. Travel expenses will stay 100% deductible after 2022 as long as travel takes longer than an average workday.
10. Phone and internet deductions
Phone, internet, and fax usage is deductible if used for your business. It’s easier to keep track of this deduction if you have a separate business phone or internet bill. However, you can deduct most, if not all, of your personal phone or internet usage if you need it for your job.