People who use the right side of their brains to work, day in and day out, are often referred to as creative types. These people include graphics designers, professional writers, commercial artists, movie makers, online content providers, flower arrangers, and others who produce original or inventive work.
If you’re a creative individual who is self-employed, you’re in the unique financial position of reporting and paying taxes just like any small business owner. To make sure you don’t overpay on your taxes, though, you should be aware of all the deductions you can claim to reduce your tax payments. Here are some of those deductions.
General Business Expenses
As a creative person operating your own small business – whether as a sole proprietor, a limited liability company (LLC), or some other business structure – you can deduct a number of general business expenses from your taxes. These include:
- Office supplies
- Business cards and advertising
- Website costs
- Phones, computers, and tablets
- Internet and phone fees
- Printers and supplies
- Office furniture and storage
- Rent (if you lease space outside your home)
- Professional services
- Interest on business loans
- Bank and payment processing fees
- Startup expenses
These expenses must be used entirely for your business in order for you to deduct them in full. If you employ some of them – a phone, laptop, or internet access say – for both business and personal use, then you may be able to deduct only a part of that use for business purposes.
Home Office Deduction
If you use part of your home as an office, you may be able to deduct a portion of the business expenses you rack. This is called a home office deduction.
The IRS has strict rules about what does and doesn’t constitute a home office. In order to take the full deductions you’re entitled to, the space should be entirely devoted to your business. But it doesn’t have to be an entirely separate room. It can be part of a room in your house or apartment, or a studio in a garage – any place you devote to your creative work.
If you have a home office, you may be able to deduct a percentage of your:
- Repairs and maintenance
- Security system
- Homeowners insurance
- Real estate taxes
- Home mortgage interest
- Depreciation on your home
- Rent (if you don’t own your home)
The exact percentage you can deduct for some of these expenses depends on the size of your office space in relation to the rest of your home. So, you’ll need to know the square footage of both in order to claim the deductions.
As an alternative, you could take a flat-rate deduction of $5 per square foot of home office space, up to 300 square feet – a maximum write-off of $1,500 per year.
Any continuing education that allows you to offer the services you do or to upgrade your skills may be deductible. Note that it must be education for your current career. You can’t deduct expenses for training to do something different, such as a graphics designer hoping to become a screenwriter. Also included in educational expenses are books and subscriptions to websites or publications you need to do your job.
If you drive to meet clients, you’ll want to deduct the business use of your vehicle. You may be able to deduct actual expenses, but most small business owners use the standard mileage rate. Make sure you keep accurate records of all miles driven throughout the year.
Other travel expenses you can deduct include tolls, taxis, rideshare services, public transportation, or other expenses you realize. You may incur these expenses when you visit a client, when you travel to a work-related conference or workshop, or when you travel to pick up supplies for office use or raw materials for your creative endeavor.
20% Deduction on Qualified Business Income
The Tax Cuts and Jobs Act of 2017 instituted a 20% deduction for small business owners who report their income on their personal tax forms (called “pass-through income”). The deduction is subject to some limitations and is set to expire in 2025, but for now it allows you to reduce your adjusted gross income, saving you substantial tax dollars.
There are plenty of other deductions you can take as a creative entrepreneur, including self-employed retirement plan contributions. A capable tax accountant can help to make sure you get all the deductions you’re entitled to. Hiring an accountant to do the left-brain work of preparing your taxes can reduce stress and allow you to focus on the right-brain work you love.