I’m sorry to bring up taxes. They are the most boring topic on the planet and stressful this time of year. But tax write-offs, once you understand them, are almost … fun? Or at the very least they can save you a lot of money if you freelance, have a side hustle, or run your own business.
For example, a fitness-instructor friend of mine writes off acupuncture and massages — her body is part of her product! Someone I know whose dog is an influencer (for real) writes off all dog food, toys, vet costs, and grooming. An author friend wrote off new clothes she’d bought for her book tour. As a freelance writer, I write off the membership fees for the work space I go to every day along with most of my internet bill and magazine subscriptions. See? About as fun as taxes get.
Tax write-offs are technically defined as a business expense (or “loss”) that you subtract from your profits, thereby shrinking your taxable income. If you’re self-employed, you already pay significantly higher taxes than employees with regular full-time jobs, so it’s worth the effort to make your taxable income as low as reasonably possible.
That said, if you get too creative with your interpretation of “business expenses,” the IRS might audit you, which is almost never worth it. In addition to eating up a lot of your valuable time, audits can be costly. “If an auditor comes to your door and says, ‘Show me all the receipts for these things and explain them,’ and you can’t, then you will owe taxes and penalties on top of that,” explains Ally Jane Ayers, a certified financial planner and co-founder of Brooklyn Fi, a financial-planning firm that specializes in creative businesses and start-ups. “That’s a real headache. Not to mention something many freelancers and small-business owners can’t afford.”
So how do you know what’s okay? Per the IRS’s definition, you can deduct any “ordinary and necessary” business expense. Some of these are obvious — like office supplies, your work laptop, a percentage of your phone bill (if you use your phone to work, which of course you do), and part of your rent if you work from home. But others are more, shall we say, flexible. “Taking your agent out to dinner to thank them for signing your book proposal? Yes, that’s a business expense that would probably qualify,” says Ayers. “Taking them to Nobu for a $5,000 dinner with 12 of your closest friends? No.”
Every accountant has stories of clients who have tried to write off fancy dinners or parties and were audited for it. That’s why, if you’re hoping to pull off that kind of thing, it helps to have a tax professional who knows what they’re doing and can tell you no before the IRS does. (You could ask that tax professional before you plan and pay for the fancy dinner or party to make sure the expense is sufficiently business-y.)
Basically, use your common sense. It helps to keep meticulous records, says Susan Lee, a tax professional who works primarily with artists, writers, and other self-employed people. “If you keep track of every penny you spend on your business, it’s a lot easier to make your case,” she explains. A copy of your credit-card bill probably won’t cut it, but notes on each expense and what it was used for? That’s better.
Here are some other potential write-offs worth considering: “If you’re in a creative business, you should be able to deduct at least a portion of most cultural expenses,” says Lee. “For example, you should be able to write off museums, movies, and TV, because how else do you soak up what’s in the world and stay relevant?”
Of course, that may bring up the question of the difference between a hobby and a business. For instance, you can’t take photos of your friend’s wedding, pronounce yourself a photographer, and write off your camera equipment. But where’s the line? According to the IRS, the difference between a hobby and a business is whether it makes money most of the time — the general rule is that your venture must be profitable at least three out of the past five years. “Of course, there are some exceptions, and that can be challenged under special circumstances,” says Lee.
(A note on tax write-offs for people who are not self-employed: You used to be able to deduct things that you used for your full-time job, but as of a few years ago, you can’t anymore. So even if you work entirely remotely, you can’t write off your fancy desk chair, sorry. On the other hand, you could ask your employer to buy it for you, which it might be happy to do, so it can write it off its own taxes.)
Another important deduction that every accountant would want me to mention is retirement savings (everyone’s second-favorite topic after taxes). Self-employed workers are eligible to contribute to a SEP IRA, which is another good way to squirrel money out of your taxable income and save it.
The bottom line is that if you’re filing a 1099 tax form, it’s always worth combing through your expenses and deducting them from your income. Better yet, open a separate bank account and use it to pay for all of your work-related expenses. “You’ll have to do some bookkeeping and categorizing up front, but that will save you from making yourself crazy gathering receipts for office supplies and work-related dinners during tax season,” says Ayers. Plus if you wind up hiring an accountant anyway, they’ll love you for it.
The Cut’s financial advice columnist, Charlotte Cowles, answers readers’ personal questions about personal finance. Email your money conundrums to mytwocents@nymag.com.
