Having a full-time career as a freelance professional can be a challenge. This is why many freelancers still maintain a traditional job, at least on a part-time basis. If you are looking for a new job that’s in your chosen field to supplement your freelance income, or if you are starting up your freelance business from scratch, it is possible to lighten your tax burden at the same time, thanks to tax deductions designed specifically to mitigate the costs of job-seeking.
Before you start incurring job search expenses thinking you’ll just write them off, it’s important to know the basics about eligible expenses and how you can deduct them on next year’s tax return. Here’s a quick overview:
While you can write-off some of your job search expenses, be aware that the IRS is not giving you a free pass to deduct whatever you want on your tax return. Job search expenses are deducted as miscellaneous expenses on Schedule A of your personal tax return.
The total for all miscellaneous deductions cannot be more than two percent of your adjusted gross income (AGI). This is known in tax speak as, “The 2% Rule” referring to the limitation on certain types of miscellaneous deductions. You must also itemize your deductions to claim them on your tax return.
A side note for those who are seeking to set up their own business in a similar field to which they were employed. You may qualify for additional R & D tax credits and deductions. Check with a CPA about what is available to you federally and in the state in which your business will operate.
Job searching or setting up a new freelance business may be taxing for you, but on the bright side, it can lower your taxable income, too. Just keep the above tips in mind and keep track of all of your receipts and related activities. In the meantime, may your job search be prosperous and if you’re entering the freelance community on a full- or part-time basis, congratulations!
Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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