by Alexandra Pauline - February 6, 2012
The Art of Tax Deductions
If you're a freelancer, or you own a small business, the idea of getting a tax refund is likely a foreign concept. Unlike our W2 bound friends, the art of understanding tax deductions is even more crucial for 1099ers when figuring out what you really owe each quarter and at the end of the year. Consult with your accountant and take advantage of these Fab & Fru career specific tax tips - so you don't end up paying more than you actually owe!
Writing-Off Your Home Office
What constitutes a home office anyway? It doesn't matter if you're a musician, writer, financial consultant or a florist, if you work from home, you may be eligible to write off portion of your rent or mortgage if your work space fits the IRS's criteria. According to the IRS, the key is your home office must be used for the business purposes ONLY, and if audited, you must be able to prove it. Even if your work area is part of larger room in your house, that space must be sanctioned off in some designated way. -You can deduct up to 33% of your rent, so consult with your tax professional when trying to figure out the appropriate deduction to take.
The Cost of Doing Business… At Home
In addition, Michael Carney of MWC Accounting states that: "If an entrepreneur or small business owner operates their business from their home, there are many expenses that they can deduct. Office furniture, heat, air conditioning costs, electric bills, and related home repairs are just examples of potentially eligible deductions." Frugal freelance writer Robert Ellis-Smith even added, "When I first opened my business - publishing a newsletter - I deducted the cost of firewood because that is how I heated my separate home office!"
If you are an actor, comedian, dancer or musician, there are many unexpected deductions you can take as a working performer. While working hard to try and make it big doesn't come cheap, you are entitled to some substantial deductions that may make tax time a little easier. Did you know that your union dues, head shots, costumes, gym membership, monologue books, sheet music, haircuts and reels may all be eligible to be written off within the year of purchase?
According to the Screen Actors Guild, if you have to travel for an audition or a gig, you may also be able to deduct expenses associated with overnight travel relevant to your work. This includes deducting sizable tips, lodging, dry-cleaning and 50% for your meals. -The IRS defines overnight travel to be any excursion far enough away from home so as to make it inconvenient to return home at night.
The Standard Mileage Allowance
The IRS's Standard Mileage Allowance allows you to deduct your driving mileage too! The 2011 defined allowance is 51 cents per mile for the first half of 2011 and 55.5 cents a mile for the second half of the year. - FYI, the 2012 tax season allowance will stick at 55.5 cents. No gas receipts are necessary for this deduction, but you do need records to show the distances driven and the purpose for each trip.
"Art" of Deductions
Pablo Soloman, an internationally recognized artist and award winning green designer points out, "If you are an artist who has been asked to donate a piece of your work to a museum or charity - even for a short period of time - you will likely be eligible to write-off a portion of your work." Keep in mind, you can't write-off your time or labor, but the IRS does allow you to deduct the cost of all of your materials - and materials can really add up!
Write Offs For Writers
If you are a journalist, professional blogger, screenwriter, or novelist, your new computer may just save you in taxes as much as it's helping you earn a living! CPA Michael Carney says: "Deductions for tech-toys like the iPad and other high-end gadgets (digital cameras, video cameras, etc.) can also be counted as a tax deduction. The IRS is fairly strict on drawing the line between perks and necessity in this area, but they are less apt to question this deduction for a writer than for someone who works in a field where high-end computer products are not as important."
Additionally, as an author, if you're writing a book - especially without an advance - the cost of doing business can become quite financially challenging. Keep your receipts for all research and related legitimate expenses. These expenditures are tax deductible!
If you're a 1099er or small business owner, a very Fab & Fru way to reduce your taxes is to write-off your cell phone bill. The key to this deal however is that you must also have a land line or multiple mobile numbers. If you operate your entire life from your one iPhone, the IRS will not accept the deduction as legit. You need to prove that you have an additional line for business purposes.
Consult a Financial Professional
As a working freelance professional, the best way to stay on top of your finances and make sure you're getting the most out of your career is by consulting a financial professional. Many of the unions like the Screen Actors Guild and the Freelancer's Union provide free support to members, including workshops and information to hook you up with accountants and financial advisers that cater specifically to your field. Remember, write offs and deductions can really add up - so don't pay more than you have!
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