16 Tax Deductions for Freelance Marketers and Copywriters
As a freelance marketer, you’re hustling every day to grow your business. One of the toughest parts of being self employed is handling your tax forms. At Hurdlr, we’ve found that most freelancers don’t take all the best tax deductions available to them – meaning they pay too much in taxes, leaving their bottom line smaller than it should be. Less taxes equals bigger profit – and that’s money you can put right back into your business to help it grow. Most marketers can probably relate to these words spoken by the famous Gary Vaynerchuck: “I love people, and the hustle.” Why take away time and resources from your passion when you don’t have to? Use these tax write offs to your advantage and supercharge your bottom line. To do that, here are the 16 best tax deductions for freelance marketers.
Professional and Legal Services
Business owners can deduct legal and professional fees to the extent they are an ordinary and necessary part of operations. Legal and professional services is a broad category that generally includes expenses for your lawyer, accountant and any other professional consultants you may hire.
Example: Sarah is a freelance copywriter who signed up for a LegalZoom account in order to help draft client contracts. She prepaid the subscription for the entire year which cost her $288. Sarah is able to deduct the entire amount from her gross income as a legal expense on her Schedule C.
Where to Take It: Line 17 on Schedule C.
The IRS allows you to deduct reasonable advertising expenses that are directly related to your business activities. The deduction for advertising expenses is broad and can include a number of expenses used to promote your business as long as you can reasonably support it on your tax return.
Example: Tupper is a marketing consultant and she wants to promote her new marketing ebook, so she decides to run aggressive AdWords and Facebook campaigns for eight weeks to drive initial sales. The campaign costs a total of $500 a week. If that was her only advertising expense for the year, Tupper can deduct $4,000 on Line 8 of her Schedule C.
Where to Take It: Line 8 on Schedule C.
Home Office Deduction
If you use an exclusive area of your home to conduct business, you may be able to deduct related expenses on your tax return as a home office deduction. The space has to be fully dedicated to business though, which means your couch, exercise room, and kitchen table don’t count. Further, it needs to be used regularly for management and administrative functions. If you are allowed to take the home office deduction you can take it in two ways, simplified and regular:
- If you use the simplified method, you can take a deduction of $5 per square foot for each square foot of your home used for business purposes (up to 300 square feet).
- If you use the regular method, keep track of all your home expenses, including maintenance, repairs, utilities, real estate taxes, rent, etc. so you can deduct the portion of these expenses related to your home office. Use Form 8829 to calculate your home office deduction.
- Direct expenses that only benefit the part of your home you use for your business are usually 100% deductible.
- If you elect to use the simplified method, you cannot claim any home depreciation for the portion of your home you use for business activities.
Example: Timothy is a marketing consultant who converted the guest bedroom in his house into an office, which he uses exclusively to call clients, work on projects and manage contracts. When it comes time to do his taxes, Tim decides to try itemizing his home office expenses since he thinks it’ll be a bigger deduction than the simplified method. Tim’s office is 200 square feet out of 1,500 total square feet in his house. His rent is $3,000 per month, and utilities average $180 a month. Timothy’s home office expense can be calculated as follows: (Rent + Utilities) x 12 = $38,160 x percentage of home expenses used for office. Tim’s home office percentage is 13.3% (200 sq. feet / 1,500 sq. feet), therefore the applicable home expenses Tim can deduct on his business’ tax return are $5,088, or $4,088 more than what he could have claimed if he took the simplified deduction (which would have been 200 sq. feet x $5).
Where to Take It: Line 30 on Schedule C. If using the regular method, you must complete and attach Form 8829. If using the simplified method, follow the instructions on Schedule C.
Software and Online Service Subscriptions
Many freelance marketers subscribe to online services or purchase software to support project management, invoicing, and productivity, just to to name a few. Drip, LeadPages, Hurdlr, FreshBooks, and Dropbox could be considered software or online service subscriptions. Since these platforms are often critical to what marketers do, they are generally fully deductible.
Example: Rico is a freelance marketer who decides to get a Dropbox Pro subscription on June 1 to send, receive, and store files for his business, which costs $10 a month. On September 15 of the same year, he signs up for LeadPages to help attract and retain new clients. His subscription costs $50 a month. Rico could take a deduction of $245 on his year-end tax return [($10 x 7) + ($50 x 3.5)].
Where to Take It: Software and online service subscriptions fall under the “Other” category on line 27a of Schedule C. The “Other” total is calculated on Part V of Schedule C.
Many entrepreneurs give gifts to their customers, clients, suppliers or other business associates to show their appreciation. Gift-giving is a regularly accepted part of doing business, and the IRS recognizes the expense as a legitimate tax deduction. Businesses are allowed to take a deduction subject to a $25 limit per gift per recipient. The business gift deduction could be claimed on your Schedule C or your Schedule E, while gifts made to charitable organizations could be deducted on your Schedule A if you itemize your deductions.
Example: Mary wanted to do something special as a thank-you to her first big copywriting client. Since she knows her client loves comedy, she purchases two tickets to the upcoming Louis C.K. show. The tickets cost $100 total, so Mary would be able to deduct $50 ($25 x 2) for the gift.
Where to Take It: Business gifts fall under the “Other” category on line 27a of Schedule C. The “Other” total is calculated on Part V of Schedule C.
As a business owner, having meals with customers, clients, or employees may be deductible as a business expense, so long as the meal was directly related to or associated with your business. Generally, the deduction for business meals is limited to the 50% of the total cost (including tax and tip).
Example: Jimmy attends a marketing conference in Miami to network and learn about the latest trends from industry thought leaders. While at the conference he meets Bobby Hotshot, a successful entrepreneur who wants Jimmy’s services to help him market his newest product. Jimmy invites Bobby to a steakhouse to discuss the potential business deal, where he spends $300 on a nice meal for them both. Jimmy would be able to deduct 50% of the $300 expense, or $150, as a business meal on his Schedule C.
Where to Take It: Line 24b on Schedule C.
Marketers need to travel away from home to meet with clients, interview potential employees and business partners, attend conferences, or conduct other activities related to business development. If you travel for for business purposes, whether it be within your city or town, a different state, or even outside of the country, your travel expenses will generally be deductible as long as the primary purpose of your trip was for business.
Example: Jimmy, a freelance marketer, bought a flight from Washington D.C. to Miami to attend the latest marketing conference. The round trip flight cost $800 and his four night hotel stay cost another $600. Jimmy can take the total $1400 as a tax deduction on his Schedule C.
Where to Take It: Line 24a on Schedule C.
Just like business travel, hotels, and other ancillary costs necessary to conduct or promote business, trade shows or conferences which charge fees to attend are usually deductible on your Schedule C.
Example: Jimmy bought the all-inclusive package for the Excelsior marketing conference he’s attending in Miami, which cost $1,500. He’s able to deduct the entirety of the conference fee on his Schedule C as a qualifying business expense.
Where to Take It: Conference and trade show fees fall under the “Other” category on line 27a of Schedule C. The “Other” total is calculated on Part V of Schedule C.
Building relationships with your clients, partners, contractors advisors, and employees is key to being a successful entrepreneur. Often times, entertaining the aforementioned parties can help you win business, expand your network and show your appreciation for those you work with. The IRS considers entertainment costs as an ordinary and necessary part of doing business. Accordingly, your qualifying entertainment expenses may be 50% or in some cases 100% deductible. If your entertainment expense is considered promotional in nature, you can generally deduct the entire expense rather than just 50%.
Example: Rohit decided to host a small networking event at a local restaurant in order to build his brand and potentially meet new SEO marketing clients. Hosting the event and providing catering cost Rohit $500. Because the entertainment was promotional in nature, Rohit can deduct the entire $500 as a business expense rather than $250.
Where to Take It: Line 24b of Schedule C.
Office space can be one of the most expensive costs an entrepreneur incurs. Whether you have an office in a commercial building, work from home, an incubator or a coworking space the costs you incur to house your business operations may be deductible and they can quickly add up.
Example: Laura is a freelance marketing consultant rents a private office at WeWork for $550 a month in order to meet with clients in a space other than her home. She starts her membership on September 1. Laura would be able to deduct $2,200 on her annual tax return for office rent in addition to home office expenses if she continues to conduct business at home.
Where to Take It: Line 20b on Schedule C.
Inevitably there will come a time in most every entrepreneur’s career when they encounter difficulty collecting an outstanding receivable. Before you can classify your outstanding account as bad debt, you will probably make an effort to collect what is owed. Oftentimes this involves contracting with a third party for a fee to help with collection. The good news is these costs are generally deductible regardless of whether or not you are able to collect on the outstanding account.
Example: Vince is freelance marketer in the Boston area. Two months ago he billed a small bakery in Lowell $2,000 for SEO marketing consulting services rendered to help boost their online visibility. Vince sent the $2,000 invoice to his client, but since has been unable to collect or contact them. After 60 days of trying to collect on his own, Vince hired a collection agency that was successfully able to recover the money, net of a 10% fee. Vince would record $2,000 in gross income for the consulting services and $200 of collection costs when he prepares his Schedule C.
Where to Take It: Collection fees fall under the “Other” category on line 27a of Schedule C. The “Other” total is calculated on Part V of Schedule C.
If a client fails to pay your business for services rendered, it could be considered a bad debt expense (uncollectible account), which in certain circumstances can be fully deductible. In addition to being a deductible business expense, there are also a few situations where you may be able to deduct nonbusiness bad debts on your 1040 (individual tax return).
Example: Melissa does one-on-one marketing coaching to small businesses and solopreneurs. She billed one of her clients, Bob Jippy, $500 for 8 hours of online coaching through FreshBooks. After one month of not receiving a payment, she tried to email and call him but received no response. After two months, Melissa sent a reminder invoice but was still unable to reach Bob for payment. Three months passed and Melissa decided to write off the $500 owed from Bob as a bad debt expense. She would be able to deduct the amount owed from Bob on her Schedule C.
Where to Take It: Bad debt expense falls under the “Other” category on line 27a of Schedule C. The “Other” total is calculated on Part V of Schedule C.
Employee Wages and Contractor Payments
Many successful sole proprietors reach a point when they can no longer do everything on their own. To continue to grow, often times solo entrepreneurs will hire employees to assist with the workload. Employees are different than contractors in a financial sense in that the employer is responsible for paying part of their “payroll” or FICA tax, which is 7.65% of their gross income, while contractors just receive a flat paycheck. However in the case of both employee wages and contractors, any amount paid for services rendered is a deductible expense on Schedule C.
Example: Janet, a freelance marketer, was able to record sales of $60,000 between billing clients for consulting, affiliate deals, and the sale of her e-book during the year. Janet is an unincorporated sole proprietor. She withdrew $42,000 over the course of the year from her business checking account to pay personal bills and support her family.
Janet also paid a web designer, Fred, $4,000 to upgrade her website, install a custom shopping cart and perform SEO. Janet can deduct the $4,000 on line 11 of her Schedule C as contract labor, but cannot deduct the $42,000 as wages paid to herself on line 26. Since she paid an independent contractor more than $600 during the year, Janet also has to complete and file a 1099-MISC to report the amount paid to Fred.
Where to Take It: Report contract labor paid on line 11 of Schedule C. If amount paid to an individual contractor is greater than $600, also complete and file Form 1099-MISC. Report wages paid to employees on line 26 of Schedule C.
The additional expense involved in bringing on employees to help grow your business, besides paying them regular wages, are so-called payroll taxes. Payroll taxes are the term used to refer to an employer’s responsibility to share half of an employee’s Social Security and Medicare taxes assessed on each paycheck. The amount paid is equal to 7.65% of the employee’s gross salary. In addition, now that you’re an employer, you’ll likely be subject to state payroll taxes as well. The good news is that the amount paid in both state and federal employer payroll taxes are a deductible expense on Schedule C.
Example: Rob hires Serenity as his first employee to be his marketing assistant and coordinator for deals and clients. Her gross paycheck is $2,000 every two weeks. In addition to Serenity’s wages, Rob pays 7.65% in payroll tax, or $153. On the first $7,000 of wages paid to each employee, Rob would also owe 6% in Federal Unemployment (“FUTA”). Employers are also responsible for any state payroll taxes in most states. Rob uses Gusto to handle his payroll needs.
Where to Take It: Line 23 on Schedule C.
Website and Hosting Fees
Website costs to acquire, design, maintain and market your site are common business expenses. Web costs are broad and can include but are not limited to development, programming, domain fees, hosting, and analytics. While many of these costs are deductible, the IRS treats certain website expenses differently. Generally, the money you spend on development may need to be capitalized and deducted over several years, while the money you spend on operating and maintenance can be expensed in the year incurred.
Example: John’s first step in starting his freelance marketing business is setting up a nice website. He purchases a domain and hosting plan through Bluehost, paying in advance for the entire year for $165. He also contracts through Fiverr to get a custom WordPress theme and copy for his website for $150. John can expense the $315 on his Schedule C for website expenses in the first year.
Where to Take It: Website and hosting fee expenses fall under the “Other” category on line 27a of Schedule C. The “Other” total is calculated on Part V of Schedule C.
Start-Up and Organizational Costs
Starting a new business can be an expensive proposition, which is why the IRS allows new businesses to deduct up to $5,000 in start-up costs and $5,000 in organizational costs incurred in the first year before operations commence. The IRS defines startup costs as those “incurred before you begin operations and include certain amounts paid to create a new active business or explore the acquisition of an existing active business”. Organizational costs may be incurred by partnerships or corporations (including single member LLCs and single member S and C corps) and include legal, accounting and filing fees associated with starting your business. The $5,000 first year deduction is reduced dollar-for-dollar for start-up costs exceeding $50,000, so companies that incur start-up expenses exceeding $55,000 are not permitted to take the first year deduction. Expenses in excess of the $5,000 limit are amortized over 180 months, or 15 years. Knowing how to treat your business’s startup and organizational costs can help you maximize your tax deductions and facilitate compliance with IRS regulations.
Example: Phil left his cushy job at a large firm to become an self employed marketing consultant on June 1 of the current year. He’s able to bring over several clients from his old firm to become the first clientele of his new company. He hires a lawyer to draft contracts for these clients as well as form and register his company, Highpoint Marketing LLC. The lawyer’s fees for these services is $5,000. He also hires a web developer to build and market Highpoint’s website, which cost $3,000. Phil is able to take the $5,000 start-up deduction in the first year, plus amortization of the excess $3,000, which is calculated as [$3,000 x (7/180)]. The total of Highpoint’s first year deduction is $5,117.
Where to Take It: Start-up and organizational expenses fall under the “Other” category on line 27a of Schedule C. The “Other” total is calculated on Part V of Schedule C.