Saving on taxes as a freelancer is really tough. The only thing you have in your favor is a tax deduction. As a self employed person, you may be eligible for many of the tax deductions that are allowed for self-employed persons. Without deductions, it is tricky trying to save on taxes as a freelancer.

 If Your Accounts Are Simple, Then Being Audited Is A Breeze

If you keep your accounts as simple as possible, then being audited is a breeze. An audit is only horrible when you have hundreds of different documents and papers that you have to sort out. The less transparent your bookkeeping and your accountancy is, then the more painful and difficult a audit is.

 Debunking The Tax Myth

Hiring an accountant or doing some sort of trick will not keep you from being audited. The people who are chosen to be audited are partially chosen at random and partially chosen because of odd financial transactions. For example, if you suddenly pay off your debts in one year, or suddenly cash out an interest generating investment that you haven’t mentioned before, then the IRS is going to become suspicious.

 Hire Members Of Your Family

Frankly, you can have family members do almost anything, and then you can deduct their wages as a business expense. You don’t need employee liability insurance because your family is not going to sue you. You can claim their wages as a deduction and lower your self-employed income. What’s more, you can pay your children the lowest minimum wage band if they are of the right age. Don’t forget that you can claim a deduction for things such as repairs and deductions in your house/office.

Hire members of your family to save on taxes

 Debunking The Tax Myth

The IRS does not use the phone to contact you about audits and such. You will not receive a phone call from the IRS, so if you do, it means the person on the other end is a scammer and you can give them the payment details of Kermit The Frog. There is also a belief that the IRS will come and knock on your door if they are not happy with you, but that sounds more like a scare story than something that is true. The IRS may contact you via email, so you are going to have to be wary as to whom you trust. There are sometimes some telltale signs.

For example, in the image below it is from the UK customs…or so it would have you believe, until you see that it refers to me a Taxpayer as opposed to my name, and there is a rather obvious spelling mistake that gives them away.

Costoms Email

 Have Part Of Your Whole House Written Off

As a quick rule of thumb, you may mark as much as one third of your house as used for business purposes. It is a quick guide rule to help you save on taxes, and it is applicable if you are reasonable with it. After all, why can’t your office have its own kitchen, bathroom, snoozing rooms and so forth? Some people only claim for their office, but that is wrong and unfair, you can claim for 1/3rd of most of your household bills if you wish and an auditor will not mind. They only have a few small rules on what you may define as business use, and they are fairly easy to prove when you are audited.

Debunking The Tax Myth

Just because your home office has other stuff in it doesn’t mean you can’t write it off your taxes. I have read articles that say if it doubles as a baby nursery for your kid then you cannot claim it as a home office, but you could stuff your office with plastic ducks and still claim it as your working office. You can claim a portion of your entire house if you wish.

 Set Up A Tax Savings Account

Setting up a tax savings account is not as dumb as it sounds, and if you are really good it, you can earn a little cash and add to your savings account at the end of the year. Every time you are paid, you put 20% into your savings account. Create a savings account especially for your taxes only. There are online banks and savings accounts that allow you to set up accounts and name them.

capital one 360 saving and checking account screenshot

Not only will you have plenty of money to pay your tax bill, but what with your deductions and allowances, it will be far less than what you have saved. When you have paid your tax bill, you can take what is left over and put it into your business, save it, or spend it if you wish.

 Debunking The Tax Myth

I am still determined to debunk the home office myth because the rules around it are so bendable and yet people online say that you cannot do it. As a self-employed person, you can deduct your home office, computer, desk, light bulbs and whatever else you need in your office. Your home office is your principle place of business and it doesn’t need to be zone for commercial use unless you are renting space to other office users. Meeting with customers over the Internet from your home office is the same as meeting them in your home office.

Self Employed People Enjoy Far More Deductions Than Employed People

There are so many that it may make your eyes water. Start with this simple guide from the IRS about self-employed deductions. Do a lot of research into tax deductions so that you may save on taxes and deduct for medical expenses because you can deduct far more than most regular employees. Do research into social security payments because you may be able to claim half of the 15.3% as a deduction, and there are tax shelters for your retirement just like there are for employees in companies. Meals and entertainment may also be partially deductible, and interest from your business loan is tax deductible too.

 Debunking The Tax Myth

You cannot write off gambling losses. Some self-employed people seem to think that the word “loss” instantly means deduction. If you sell a bunch of products for a loss, then you may be able eligible for a deduction here and there, but you cannot go for a trip to Vegas and write off your losses–even if you are playing with business money. Gambling is not a business activity. As a side note, I am well aware that some people are able to write off their gambling losses, but it is a big red flag for the IRS if you (a self-employed person) makes the occasional deduction for gambling losses.

 You Can Save On Taxes By Swapping Services

 You Can Save On Taxes By Swapping Services

If you have to use other people’s services in order to conduct your business, then consider swapping services rather than paying each other. Having to pay each other means add it into your accounts, moving money back and forth and so forth. When they pay you, it adds to your income, which means more taxes. To avoid the paperwork and maybe avoid having too much income, you may be able to swap services. You do something for other people and they do something for you.

For example, if you are a freelance writer, your proofreader could give his or her services for free if you write his or her blog posts for free. You are not making deductions by paying another person, and you are not adding income either into your bank accounts either. It is handy for if your estimated income looks like it may breach a certain threshold that leaves you open to pay more tax. You could swap services instead so that you do not have enough income to push you over the threshold.

Debunking The Tax Myth

Tips do count as income. It may be easy for a waitress to hide her tips from the IRS because they are paid in cash, but most freelancers are paid digitally, which means tips are paid digitally too. Most freelancers find it very difficult to hide their tips because they have a digital trail on the Internet. It is not as difficult to hide presents that people send to you through the post, but you should still report them if you receive them. You can always report them at their lowest price rather than their highest.

Donate To Charity If You Are Going To Hit A Higher Tax Band

donate to a charity

It’s an old trick, but it is still valid. If you are going to hit a big tax band that is going to take a chunk out of your take-home income, then donate to charity and mark it down as a deduction. If people donate to you via your website or with tips, then you may pass them on as donations to charity and it won’t look so sneaky.

Debunking The Tax Myth

The idea that the wealthy do not pay their fair share is bitterly incorrect. The US is probably the worst place on earth to be successful with regards to how much tax you pay because the federal and state government will come after you again and again until there is nothing left. Just look at Atlantic City where they are going bankrupt because the local businesses have been bled dry and now the entire area is dying. You won’t complain too much about the wealthy not paying their fair share when you are up there with them and you are earning 15 cents for every dollar you make.

Just How Are You Valuing Things?

I have to be very careful how I explain this point because I do not want to encourage any unethical behavior, so I will give a personal example. About three years ago, I did some work for a guy who ran a gambling tool on a website. It measured the likelihood of soccer teams scoring and winning based on thousands of statistics. My job was to write articles about betting systems that people may use with the tool.

The tool was free for everybody to use, so I saw nothing unethical about helping people use it. I came up with a few clever systems of my own, such as betting against teams that had a 2-0 lead if the statistics said they often win in the second half of the match. The website owner tried my system himself and won a bundle.

He sent me a gift of a professional bow and arrow set (I have no idea why), but since I had already received over $14,000 in gifts, I had to pay tax on its value. I looked up its value on six websites and picked the lowest value, took a screenshot, made a note, and that was the end of it. There was a time when I did consider valuing it as its resale value, but I didn’t want to risk it. I could have picked a middle-price, but I picked the lowest price for the bow and arrow set I could find.

As a side note, if you try to shoot apples off your apple tree, your arrows fly through them and over into your neighbors garden.

 Debunking The Tax Myth

If you see anything about a tax break, and then it says, click here to find out, then it is a scam. Armed with this knowledge, I did extensive research online to see if I could find a genuine tax break. I was directed to all sorts of websites from e-book adverts, to “we will file your tax return for you” website hosted by convicts in a Miami prison. Norton Internet security saved me from many malicious websites, and I was also directed to a website where Sally was living nearby and really wanted sex.

Wanting Sex Adverts that were adjusted

Conclusion – There Are Lots of Deductions To Research

You can save the most money by researching all the deductions that apply to you. Deductions are different for self-employed people than they are for people who have been employed or for people who are employed. What’s more, you may be due some very specific deductions for freelancers that work in your industry or field. The medical deductions are definitely worth looking into because you may be able to deduct money you pay into a family insurance plan. Also, beware of people calling saying they are from the IRS, and you will receive emails from people pretending to be the IRS, so be careful which emails you trust.