Taxpayer asks:

Hey taxgirl, if I’m a freelancer, buy a desk/chair and try to deduct it is that like begging for an audit? Advice on what to deduct/not?

Taxgirl says:

First of all, I’m psyched! This was my first taxgirl question via twitter! How exciting!

And now for the answer! The short answer is yes, deduct away.

Working from home or freelancing is tough because you have to supply everything yourself – from furniture to computers to office supplies. You are also responsible for your own benefits, such as health insurance. But the good news is that because you have to spend money to make money, these things are deductible.

The easy way to get started with deductions is to walk through your day and take stock of all of your expenses – from post-it notes to train tickets. Ask yourself which of these expenses you would NOT be responsible for if you weren’t freelancing or working from home… You wouldn’t include meals, for example, because you have to eat, working or not. But you would include business cards, computers and the like. A good rule of thumb then, is to think about what is “ordinary” and “necessary” for you to operate your business (those are the terms that the IRS likes to use) and start your deduction list from that point.

With respect to an audit, you should feel free to be aggressive but not greedy. If you feel that you can justify an item as a business expense – your groovy new iPhone for example – then document it appropriately and claim it as an expense. But those pumpkin lattes to get you through the day? They don’t count. I like to use the “laugh test” – can I say it out loud with a straight face? If I can’t, or if I feel the need to add a lot of “but” and “because”, then it’s likely not a reasonable expense.

You can read more about working from home and taking deductions here. You can also download my popular post on Tax Deductions That Bloggers Often Overlook here” – while it’s targeted to bloggers, many of the deductions also make sense for writers, freelancers and others who work from home.

You can also find more information about pro-rating your home office here.

Be sure, however, before you start piling on the deductions, that you’re taking appropriate deductions in the pursuit of a business and not a hobby. Occasionally writing for fun, selling crafts that you make – and even Mary Kay – may actually be hobbies and not business pursuits. A business doesn’t have to be incorporated to be a real business – but you must run your business like a business.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

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Kelly Erb is a tax attorney, tax writer and podcaster.

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