Home office: Many freelancers work out of a home office but are afraid to claim the home office deduction because it's considered a red flag that increases your chances of an audit. However, if you legitimately work at home and are following the IRS guidelines found in Publication 587: Business Use of Your Home, you may want to consider taking ...the deduction. The main qualification is that the space you call your home office must be used exclusively for work.
Currently, the home office deduction allows you to deduct a percentage of your mortgage interest, homeowner's insurance, utility bills, home repair bills and depreciation. The percentage is based on how much of your home is used as an office, so if your "office" is a couch and a laptop, then you're not likely to qualify or even receive much of a financial benefit from the deduction.
In 2014, when you file your 2013 taxes, taking that home office deduction will get easier. Instead of filling out a long form to take the deduction, you'll be able to use a new optional deduction capped at $1,500. The qualification still holds that your home office must be used "regularly and exclusively for work," but the new form simplifies the process and lets you deduct $5 per square foot for your office on space up to 300 square feet. If your office is bigger than that or you regularly deduct more than $1,500 for it, you can still use the longer form.
- Computer: If you use it for personal business as well as work, you'll have to determine how much time you use it for each function. In other words, if you work on it 20 percent of the time and play with it 80 percent of the time, you can only deduct 20 percent of the cost on your taxes.
- Travel: If you travel for business, you can deduct 100 percent of your airfare and hotel stay and 100 percent of a meal eaten while working with colleagues. You can deduct 50 percent of your costs when entertaining clients.
- Health Care Expenses: As a freelancer, you can deduct your health care insurance premiums, including COBRA costs from your previous job.
IRS Publication 535: Self-Employed Health Insurance Deduction provides the details, but in general you must be reporting a new profit for your business on Schedule C or Schedule C-EZ.
- Retirement Savings: While you don't have the benefit of a 401(k) from an employer, you can open a Simplified Employee Pension (SEP) plan to build retirement savings and protect up to one-quarter of your earnings -- or a maximum of $50,000 -- from taxes. That's much higher than the cap on a traditional IRA