If you’re one of the 70.4 million people who took on some form of freelance work or a side gig last year, you may have some tax benefits coming your way (hello, business-expense deductions!).
Here are top tax tips you should know as you prepare your 2022 return and as you look toward next year.
1. Know what's taxable income
With any type of income, Uncle Sam wants you to pay taxes on it as you receive it throughout the year. Freelancers, gig workers, and the self-employed usually receive 1099-NEC forms to help them report job income. You’ll also owe self-employment tax: 12.4% to Social Security and 2.9% to Medicare, for a total of 15.3%.
If you received unemployment benefits in 2022, your state should send you a Form 1099-G with the details of how much income you accepted from the program. Your state may have withheld taxes for you, too. But if they didn’t take out enough, you may owe the Internal Revenue Service. (More on that below.)
2. Know what's not taxable income
If you had student loan debt forgiven recently, here’s some good news: “The American Rescue Plan Act of 2021 made any discharge of student loan debt between 2021 and 2025 excludable from taxable income,” says Ben Henry-Moreland, a certified financial planner who specializes in working with freelancers.
This may apply if you had federal student loan debt forgiven through income-driven repayment plans or the Public Service Loan Forgiveness program. The same goes if the Biden Administration erases any of your student loan balance, Henry-Moreland says.
“However, some states might still count forgiven student loans as taxable income,” Henry-Moreland adds, so check your state rules when preparing your taxes.
3. Deduct business expenses
Businesses can deduct business expenses if they’re an “ordinary and necessary” part of running your business. That goes for all self-employed workers, from Uber drivers to freelance writers and Amazon shoppers. Publication 535 provides all the information you’ll need to know about deducting expenses such as :
-
Transportation
-
Health insurance
-
Supplies used for your business
-
The self-employment tax
-
Retirement plan contributions
But don’t go overboard here. You can only deduct the portions of these expenses that are related to your freelance work, per the IRS. For example, let’s say you use your cellphone for work 25% of the time as an Uber driver. That means you can deduct 25% of the cost of your cell phone plan on your taxes.
4. Take advantage of your home office
You can also take a home office deduction if your office space at home is exclusively used for business on a regular basis. It doesn’t even need to be a separate room. A corner of a room with a desk and chair suffices if its exclusive use is for your business.