As a freelance writer with a freelance writing business, you’ll need to do taxes. The worst part is that income taxes are very hefty for us freelancers. In addition to paying the regular income taxes that everyone else pays, writers have to pay self-employment taxes, or SE tax, as well.
Wondering if you can deduct equipment purchased for your freelance writing business in order to offset some of those taxes?
The answer is yes.
Don’t fall into the trap of not deducting business equipment because you are afraid of an audit, or because you don’t know if you can or should deduct it. The IRS will insist that you pay taxes on every penny of income you earn for your freelance business, so be sure to get every penny of deductions you can.
Section 179 Deduction for Freelancers and Entrepreneurs
If you’ve been around tax professionals or other small business owners, you may know about depreciation. For certain business equipment, the IRS requires that you deduct only a portion of some equipment’s value each year. The idea is that the equipment has some residual value while it is being used, and you don’t get to deduct that part, because you still have that value. There are various schedules and rules that tell business owners how long they have to depreciate different types of equipment.
As a self-employed, freelance, entrepreneur, chances are you can ignore all that. It isn’t that the rules don’t apply to freelance businesses, because they do, but rather because Congress carved out special tax treatment for a certain amount of equipment purchases. This is not a small business tax break, big, multinational conglomerates get the same tax break, it just doesn’t mean as much to them.
Section 179 gives businesses the option of deducting the entire value of equipment purchased all at once during the same year the equipment is purchased. This means that if you buy a $2,500 computer, you can take a full $2,500 deduction right away, instead of having to spread it out over five or seven years.
What Kind of Equipment Qualifies for Section 179 Deduction
This is the U.S. Tax Code we are talking about here. That means that there are plenty of rules, and exceptions and so on. However, as a freelance writer, pretty much anything you buy is going to qualify for the deduction. If you go through the list of what doesn’t qualify, it talks about stuff like leasing, and generating electricity and things out of the country, and so on. The only thing that really might come up for a standard freelancer si that leases and rentals don’t count, it has to be something that you BUY.
Also, it must be eligible as a business expense. This is not different for the 179 Deduction. In other words, if it qualifies a regular business expense that you usually have to depreciate, then it qualifies as a business expense for the 179 Deduction. The same rule as always applies: It must be purchased for the business, and be used primarily by the business. Likewise, if it doesn’t qualify as a business expense under normal depreciation, the Section 179 Deduction does not make other things deductible.
How Much is the Section 179 Deduction for 2013 for Freelance Writers
The Section 179 deduction amount for 2013 is the same for everyone, whether you are a freelancer or not. And, here is the good news, unless you are the world’s most successful freelancer, you can go ahead and just deduct all your business equipment right away as a part of your Section 179 deduction, because the limit for 2013 is $500,000.
That’s right. Your small business taxes just got a lot easier. Don’t worry about depreciation. Just deduct it all now.
The one exception to this would be if your tax liability is already very low, or even zero. Then, depreciating the property allows you to have deductions going forward into tax years where you might have more income. Keep in mind that once you start depreciating something, there is no going back. You can do depreciation for a few years and then use 179 to just deduct the rest when you need a bigger deduction.
One last caveat, before you run out an buy a car for your freelance writing business, know that there are special rules for buying automobiles. Also, unless your freelance writing enterprise is much different than mine, a car is not going to count as a deductible business expense.
Coming up: What kinds of equipment and supplies are deductible for a small business like a freelance writing business?