If you’re an independent worker, you enjoy certain freedoms and flexibilities with your job. But even when you are your own boss, the IRS still gets their share. When tax time comes, make sure your money works as hard as you do: claim your deductible expenses to lower the bill, or maybe even help you score a refund.
What exactly is a deduction?
A tax deduction (or write-off) is an expense that gives you a tax break. If you paid for something during the year that helped you in your work, you may be able to subtract that expense from the total income reported on your tax return. The more expenses you can deduct, the lower your taxable income—and your overall tax bill.
5 deductible expenses you probably have:
- Mileage
All that driving — whether it’s to deliver groceries, provide a ride, or meet with a client — adds up. But the good news is you can deduct mileage as long as the driving was for business purposes. You have two options for deducting your driving expenses: 1) You can track and calculate all your actual car expenses, like the cost of gas, maintenance, and insurance. Or 2) you can take the standard mileage deduction, which is easier to calculate and save most people more money. Whichever method you use, keep a running list of your expenses or miles in your car or make it easy on yourself and use a mileage tracking app. - Medical expenses
If you spend more than 7.5% of your income on medical expenses throughout the year, you may be able to deduct some of those costs at tax time. You can deduct doctor fees, hospital bills, your prescriptions, and even your monthly health insurance premiums (though these are now more affordable than ever). Learn more about deducting your health expenses available to independent workers when it comes to saving on health insurance and medical expenses. Explore them to see what works best for you. - Work supplies
Supplies run the spectrum from office supplies like pens, paper, and envelopes to less obvious things like doggie poop bags for dog walkers, bottles of water for ride share drivers, or cleaning supplies for housekeepers. Simply put, anything you buy to keep your business running could be deductible. Just be aware that supplies are only deductible if used exclusively for your business, so keep your supplies (and the receipts for them) separate from your personal supplies. - Cell phone
As an independent worker, you’re likely using your cell phone for business. The money spent to purchase the device, as well as the cost of your service and data plans may be deductible, at least in part. Be prepared to calculate your usage since you probably use it for personal communication as well. For example, if you use your phone for business 60% percent of the time, you could deduct 60% of your phone costs as a business expense. You’ll also need to keep your bills as evidence to back up the business use, such as the number of hours spent using data. - Computer, internet, and subscriptions
If you use a computer and the internet for business, those expenses are deductible too. Related equipment purchases fall in this category as well, such as a keyboard, mouse, or printer. If you’re paying an internet provider, that’s a deduction too — at least in part. Software for the computer or online subscriptions used for business count too. Again, if the computer is also used for personal needs, you’ll want to keep records to support the deduction.
Deduct—and track—every expense you can!
This is just the tip of the deduction iceberg, and there are many more available to independent workers. Consult a tax professional to confirm what you can deduct from your tax bill, because everyone’s circumstances are different. But no matter what, you should always keep good records for items you plan to deduct so you don’t miss anything.
Every year, gig workers leave thousands of dollars on the table by not maximizing their deductions. Consider tracking your expenses throughout the year so you can save time and take advantage of cost savings! At the end of the day, deductible expenses add up and can put more money back into your pocket. Plus, when you keep more of your money, you can work toward building a savings account or splurging on something special. You work hard for your money, so don’t leave any on the table.
