10 Tax Deductions for Software & Web Developers in 2016

As a freelance software or web developer, filing and paying taxes can be frustrating, no matter where you are. The U.S. tax code can seem convoluted and labyrinthine, which often directly contradicts the logical and rational mind of a developer. As Google cofounder Sergey Brin put it, “solving big problems is easier than solving little problems.” While preparing a self-employed tax return seems like a daunting task, if broken down it’s a simple problem compared to the challenging puzzles developers and engineers solve every day.Software and web developers hold some of the most in-demand skills in today’s marketplace. The double-edged sword is while this expertise is often handsomely rewarded, the United States’ progressive tax system takes a higher percentage of income as your earnings increase.

The fastest way to reduce your effective tax rate is by reducing your taxable income. Because taxable income = gross earnings – tax deductions, the taxpayer who maximizes their lawful tax deductions can keep a significantly larger portion of their income than the person who doesn’t take advantage of the system. Therefore, two developers with the same salary or self-employment earnings can have vastly different “take-home pay” after taxes.

Luckily for you, here at Hurdlr we’ve put together a list of the ten top deductions for freelance software and web developers written in plain English. Check out the list below and let us know what you think!

Deduction #1
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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.

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: Larry is a freelance web developer in Nebraska who lives in an old farmhouse in the countryside. He does all his work in the barn, which he converted into a usable living space with electricity. Because the cost of living on the farm is so low, Larry decided to save time on his tax return and take the simplified home office deduction. The converted barn is actually 1,000 square feet, but since the simplified method is capped at 300 square feet, Larry deducts $1,500 ($5 x 300 sq. ft.) on his tax return.

Where to Take It: Unless using the simplified method, complete Form 8829, then list total on Line 30 of Schedule C.

software web developer tax deductions schedule c line 30

Schedule C (Form 1040) line 30


Deduction #2
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Business Equipment (Section 179)

The Section 179 deduction allows you to fully deduct certain qualifying property in the year purchased, rather than depreciate it over many years as would ordinarily be required (for capital assets).

The Section 179 deduction allows you to fully deduct certain qualifying property in the year purchased, rather than depreciate it over many years as would ordinarily be required (for capital assets). Generally, if you purchased tangible property for business use and placed it into service, subject to certain exceptions, you may be allowed to deduct up to $500,000 (2016 limit) in the year you incurred the expense. Section 179 can be applied to vehicles, office furniture and equipment, certain software costs and capital improvements made to your business property, amongst other things. Entrepreneurs who invest in business property can realize significant tax savings from taking advantage of the Section 179 deduction.

Example: Kendall is a veteran freelance front-end developer. In 2016, she spent $3,500 on a Mac Pro and large display to use in her business and started using it immediately. Rather than depreciate the asset and only deduct a portion of the cost in 2016, she listed the asset in Part I of Form 4562 and elected to deduct the full cost of the computer in 2016. Kendall deducted the full $3,500 she paid for her computer and monitor on line 13 of his Schedule C.

Where to Take It: Line 13 on Schedule C.

software web developer tax deductions schedule c line 13

Schedule C (Form 1040) line 13

Deduction #3
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Licenses, Software, & Subscriptions

Many freelance software and web developers subscribe to online services or purchase software to support project management, invoicing, and productivity, just to to name a few.

Many freelance software and web developers subscribe to online services or purchase software to support project management, invoicing, and productivity, just to to name a few. WebStorm, Visual Studio, FreshBooks, and Dropbox could be considered software or online service subscriptions. Since these platforms are often critical to what developers do, they are generally fully deductible.

Example: Ronson, a self-employed .Net developer, needs a Visual Studio subscription to write and edit code for his clients. The subscription is $45 a month, which he signed up for on April 15 of the current year. Ronson could take a deduction of $382.50 on his year-end tax return ($45 x 8.5).

Where to Take It: Calculate in Part V of Schedule C, list total of “other expenses” on line 27a.

software web developer tax deductions schedule c line 27a

Schedule C (Form 1040) line 27a


Deduction #4
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Business Travel

Independent designers need to travel away from home to meet with clients and potential employees and business partners, attend conferences, or conduct other activities related to business development.

Self-employed developers often need to travel away from home to meet with clients and potential employees and business partners, attend conferences, or conduct other activities related to business development. If you travel 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: Petro, an independent mobile app developer, bought a flight from Houston to San Francisco to attend this year’s Google I/O conference. The round trip flight cost $380 and his four night hotel stay cost another $720. Petro can take the total $1,100 as a tax deduction on his Schedule C.

Where to Take It: Line 24a on Schedule C.

software web developer tax deductions schedule c line 24a

Schedule C (Form 1040) line 24a

Deduction #5
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Business Meals

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.

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: While at Google I/O in San Francisco, Petro meets Derek Thompson, CTO of a hot new startup. Derek and Petro grab dinner at a sushi restaurant to talk about Petro’s potential involvement in a project with Derek’s company. Petro and Derek split the $156 bill. Petro would be able to deduct 50% of the $78 bill, or $39, as a business meal on his Schedule C.

Where to Take It: Report deductible portion of business meals on line 24b of Schedule C.

software web developer tax deductions schedule c line 24a

Schedule C (Form 1040) line 24b


Deduction #6
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Phone & Internet

If you use a phone and internet service to do work for your business, there’s a good chance you can deduct some of the bill from your taxable income even if you don’t have a dedicated phone or network for business.

If you use a phone and internet service to do work for your business, there’s a good chance you can deduct some of the bill from your taxable income even if you don’t have a dedicated phone or network for business. The IRS allows a partial deduction for your phone and internet bill if some of the time spent was for a business purpose. The taxpayer is responsible for calculating the “business use” percentage of phone and internet service and retaining documentation supporting the calculation.

Example: Chris is a freelance back-end developer. To discuss plans, revisions, and negotiate terms for his freelance projects he uses his personal cell phone. He also uses the wifi network in his house to work on projects. Chris estimates he spends an average 50 hours a week on the phone or writing code for work. His phone plan is $75/month and the wifi bill is $50 per month. Chris claims a $446 deduction on his Schedule C for other business expenses related to his phone and internet. He calculated this by finding his business use percentage and multiplying it by the total annual cost of his internet and phone bill ([50 hours / 168 hours in a week] * [$125 * 12 months]).

Where to Take It: Calculate in Part V of Schedule C, list total of “other expenses” on line 27a.

software web developer tax deductions schedule c line 27a

Schedule C (Form 1040) line 27a

Deduction #7
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Conventions and Seminars

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.

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: Petro bought the all-inclusive package for the Velocity marketing conference he’s attending in San Francisco, which cost $2,000. He’s able to deduct the entirety of the conference fee on his Schedule C as a qualifying business expense.

Where to Take It: Calculate in Part V of Schedule C, list total of “other expenses” on line 27a.

software web developer tax deductions schedule c line 27a

Schedule C (Form 1040) line 27a


Deduction #8
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Fringe Benefits

If you are ready to hire an employee or contractor, you may want to consider including various fringe benefits as part of their compensation package.

If you are ready to hire an employee or contractor, you may want to consider including various fringe benefits as part of their compensation package. Fringe benefits are non-cash compensation for services. Fringe benefits may be taxable or non-taxable so it is important you understand the proper treatment for various types of benefits to ensure you are in compliance with IRS regulations. Regardless of the tax status, fringe benefits offered for legitimate business purposes will generally be deductible on your Schedule C.

Example: Mehmet is a web developer who also monitors and regularly maintains his client’s websites. He has two employees who rotate working double shifts to ensure Mehmet’s clients can still be serviced outside of normal business hours. Because his employee working nights has limited time to leave the office during his shift, Mehmet orders food to be delivered to this employee every evening. When Mehmet is ready to file his taxes, he would be able to deduct 100% of these business meals on line 24b of his Schedule C since the night shift meals purchased were for Mehmet’s benefit and would be considered a non taxable fringe benefit.

Where to Take It: Depending on what your fringe benefit covers, it can be reported in multiple places across the Schedule C. Per the example above, you would report the fringe meal benefit on line 24b of Schedule C.

software web developer tax deductions schedule c line 24a

Schedule C (Form 1040) line 24b

Deduction #9
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Tax Preparation Fees

Depending on how complicated your business is, tax preparation fees can be anywhere from $400 to $4,000 and beyond.

Preparing your tax return can be complicated, especially if you are trying to maximize your business and personal deductions while ensuring you are in compliance with all federal and state laws. Many entrepreneurs choose to outsource their tax preparation to a professional who understands the rules and knows what landmines to avoid. Depending on how complicated your business is, tax preparation fees can be anywhere from $400 to $4,000 and beyond. Fortunately these costs are usually deductible on your Schedule C, Schedule E or other relevant business return.

Example: Jacob is a self-employed data scientist who is organized as a single-member LLC. On February 15, 2016, His accountant estimated the tax preparation fee his 2015 business return would be $1,200. While Jacob thought this seemed high, he proceeded, deciding it would be worth it since his accountant would include the $1,200 tax preparation fee as a deduction. When Jacob reviewed the returns, he realized the deduction was not included. His accountant clarified that the $1,200 fee would not be deductible until he prepared the 2016 return, since the expense was incurred after the 2015 tax year.

Where to Take It: Line 17 of Schedule C.

software web developer tax deductions schedule c line 17

Schedule C (Form 1040) line 17


Deduction #10
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Self-Employment Tax

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.

If your net earnings from self employment are $400 or more don’t forget that in addition to paying income taxes, the IRS requires that you also pay self employment tax, which is similar to the Social Security and Medicare that would be withheld from your pay if you had a 9-5 job. Currently, the self employment tax rate is 15.3%. However, you can deduct a portion of this tax when you file your tax return at the end of the year.

Example: Natalie is a self-employed “white hat” cyber security consultant who just completed her first year of business. She generated $100,000 of revenue and incurred $28,000 of expenses, resulting in a net income of $72,000 (line 31 of her Schedule C). To calculate her self employment tax, Natalie would do the following: $72,000 x 92.35% = $66,492 x 15.3% = $10,173, which she would report on line 57 of her Form 1040.

Additionally, Natalie can deduct $5,087 (50% of her total self employment tax liability) on line 27 of her Form 1040 to help reduce her taxable income.

Where to Take It: Line 27 of Form 1040 (Individual Tax Return)
software web developer tax deductions schedule c line 27a

Schedule C (Form 1040) line 27a

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial advisor or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.

Make more money with Hurdlr by minimizing your taxes and increasing your pay. Hurdlr seamlessly tracks your true expenses, mileage, and deductions in real-time, on the go.

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