A $6 tape measure could save you $2000 if you freelance

I want to talk taxes. 

I know, it’s not most people’s favorite subject, but I happen to have a soft spot for taxes. I think because it’s one time of year I get to use some of the math I spent years learning.

And understanding and staying on top of your taxes is hugely important for freelancers, which creates a nice Venn diagram sweet spot, because I'm the co-creator of Mt. Freelance --the course and community for creative freelancers. 

Mt. Freelance is all about reframing how we think about freelancing, whether it’s being proactive versus reactive about new business or seeing all the work that is out there versus fearing the phone will stop ringing when we don't have paying work. 

So here’s an invitation to think of taxes as a way to take advantage of being freelance and put money back in your pocket come April. 

I spent part of last week turning the Mt. Freelance blog post about taxes into a more thorough downloadable PDF all about taxes, expenses and deductions for freelancers. 

It covers how much new freelancers should set aside from 1099 earnings, some of the expected and unexpected deductions freelancers can take that full-timers can’t, and it even touches on the pros and cons of forming an LLC. 

But there is one deduction I want to share here in the hopes every freelancer is planning on taking it.

Your home office. 

Assuming you work from home (which I’m guessing you are right now), you can and should deduct a percentage of your rent or mortgage. (!!!)

As so many of us changed the way we worked last March, this is a good time to calculate what part of your house or apartment is a dedicated* work space.

(*"Dedicated" being IRS speak for your work area needs to be space you only use for work. In other words the part of your bedroom where you park your desk that you only use for work counts, your dinning room table not so much. Unless it’s become your full time work area and you eat elsewhere). 

If you became freelance last year, or changed how you work from home last year, or or (gasp!) haven’t been taking advantage of this deduction for years-- here’s how it works. 

Measure the square footage of your entire home.  Or better yet find the total square footage from city records or a recent appraisal.

And then measure the space you use for work. 

If it’s a rectangular room, that’s easy. If it’s part of a room, measure the part that you exclusively use for work. It might be a L shape, or even a [ shape if you are say using part of a bedroom or living room or basement. That’s okay. Just add up the parts and pieces (use paper to document your steps) and add up the total square footage or work space. 

You may have more than one place you work, say an office with a desk, and a green screen or photography set-up in your garage. Count them both and add them up. Also closets count, and anywhere else you store work stuff only. 

Oh, and keep some kind of record of your computations and ideally even some photos just in case you ever get audited and have to justify your deduction. 

Now, once you have those two total measurements, divide the work area by the total square footage of your home.

That’s the percentage of your rent or mortgage you can deduct because it’s for work. 

So if you have say, a 1500 square foot apartment, and 300 square feet is dedicated work space, and you pay $2000 in rent, you can deduct 20% of your rent, which is $24,000 a year, meaning you can deduct $4,800 off last year’s taxes. 

Assuming you pay 35% in taxes, that would mean $1680 off your tax bill and back in your pocket. Or put another way, a huge day rate for an hour of measuring and busting out the calculator.  

But don’t stop there! You can also deduct that same percentage of your water, gas, electric, and trash bills. (Wifi is different a story, you can probably take an even higher percentage).

Not to mention you can deduct the full cost of your desk, chair, monitor, house plants, printer, wifi booster or anything else for you bought for your work and work space last year.

Oh, and if you’re a condo or homeowner you can also get some extra deduction for the wear to your home. I’d explain, but I don’t fully understand it. I just let my accountant figure that part out for me. (Yes, you should hire an accountant!)

If you didn’t start working from home until say March 25th, you’ll have to do a little extra math by calculating your rent or mortgage plus bills from the point you started working from home through the end of the year. 

Same if you switched your home office from a corner of your bedroom to half your living room on April 19th. You might take, say 5%, for the first part of the year, but 27% for the rest of it. 

Or if you share your place with other people who pay the rent or mortgage and you file separately. But even still, it's worth it to take the time to do this ESPECIALLY if you plan to freelance for a long time.

If you’re nodding your head because this is old hat for you, great. 

But if this is new information, go ahead and pay us a visit over at Mt. Freelance to get the PDF to learn more about how you can take advantage of taxes as a freelancer. 

Oh, and if you’re a long-time freelancer and you haven’t been doing this, it might be worth asking your accountant about refiling previous years with this deduction added in for a nice hefty refund. 

If you have more tax questions and you’re a Mt. Freelance member, post a tax question in the FB group.  

If you’re not a member and freelance, what’s holding you back? Come join us! 

Yours in freelance,

Andrew