Being a freelance journalist comes with many specialized chores—marketing oneself and one’s work, schmoozing clients and pitching ideas—but perhaps none is more distasteful than the labyrinth of the self-employed tax return. Deductions, write-offs, expenses and the like are an afterthought to most wage earners; not to the freelancer who must pay careful attention to the line between personal and business and who’s profit for the year might rest on expensing the right things. With Tax Day coming quick, here are three often-overlooked tax breaks that freelance writers should be taking advantage of.
First-Year Expensing
The law authorizes two ways for freelance writers and other self-employed persons to write off of their outlays for such purchases of equipment as computers and file cabinets.
One is the “standard” route—recovering the cost through depreciation deductions over a period of years. Or they can opt for the frequently overlooked tactic of expensing and deducting a specified amount of equipment in the year of purchase, assuming that’s more advantageous.
Let’s say a self-employed person’s equipment purchases include $10,000 for computers, copiers, voice recorders and the like. Instead of depreciating them over five years, they can be immediately expensed. A $10,000 write-off lowers taxes by $3,000 for an individual in a top federal and state bracket of 30 percent.
Profit From Paying Your Kids
Can your children help out with some of the chores connected with your business? Then a savvy way to take care of their allowances or spending money—at the expense of the IRS—is to pay them wages for work they do on behalf of the business. This is a perfectly legal way to keep income in the family, while shifting some out of your higher bracket and into their lower bracket. The IRS allows this kind of business expense only if your children actually render services and you pay them reasonable wages.
Another break is that you sidestep Social Security taxes on the wages you pay your children under the age of 18. To qualify for the exemption, you must operate as a sole proprietorship, meaning the lone owner of a full-time or part-time business that’s not formed as a corporation or partnership (few freelance journalists incorporate so this is probably you, but check with your accountant if you’re unsure), or do business as a husband-wife partnership. Put another way: No exemption for a family business that’s incorporated or a partnership with a partner other than a spouse.
Tip
Write-offs for computers and other business expenses enable self-employed people to save more than just income taxes. They also reduce self-employment taxes.
Health Insurance Deductions For The Self-Employed
Medical expenses usually are allowable only to the extent that they exceed 10 percent of adjusted gross income, the figure on the last line of the first page of the 1040 form. That’s a high hurdle that few healthy people can meet. But the law allows self-employed individuals to deduct 100 percent of what they spend on medical insurance premiums (including qualifying long-term care coverage) for themselves and their spouses and dependents. This deduction doesn’t reduce self-employment income for purposes of calculating self-employment taxes.
About the Author: Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as: “a leading tax professional” (New York Times); and “an accomplished writer on taxes” (Wall Street Journal). This article is excerpted from “Julian Block’s Easy Tax Guide for Writers, Photographers, and Other Freelancers ” available as a Kindle at Amazon and as a print copy at julianblocktaxexpert.com.
