Fiverr Forum

From The USA? Filing Taxes? Here Are Some Deductions To Help!


#1

The more I learn about taxes, the more of a headache I get. However, I also get fascinated by it all. Since you are self-employed, you, for some reason, have to pay both federal income taxes, as well as a self-employment tax. The percentage of such changes depending on your income bracket.

With as little as 25% of your earnings going towards taxes, you may feel like quitting self-employment altogether. Don’t do that yet! There are some nifty things that you can deduct from your taxes that make life just a little bit easier.

But first things first: In the US, you are taxed based on your NET income. This means the amount of money that you made, minus your business expenses. So if you earned 10,000$ on Fiverr and elsewhere, but spent 3,000$ in business expenses, your net income would only be 7,000$, and that can save you hundreds of dollars on taxes.

So what can you potentially deduct from your taxes?

Your Rent

If you rent a place, you can deduct a portion of your monthly rent from your taxes. For instance, if you use 10% of your house for business usage, you can deduct 10% of your rent from your taxable income. This is the space where you have the desk, the chairs, etc. If it is in your bedroom, then only part of the bedroom is tax deductible space, not the whole room.

Business Supplies

Are you a writer? If so, do you spend money on pens, pencils, notebooks, printer paper, and the like? That purchase can be deducted entirely from your taxable income. If you own a website that you use to promote your business, the money that goes into that website, including marketing and advertising, is tax deductable.

Utilities

The same with the rent. If you use 10% of your house for business, you can deduct 10% of all of your utilities from your taxable income. I believe the bills have to be in your name, however. Even if you are paying for it, if it is not in your name, I doubt you can get a deduction from it.

Your Internet

From what I have discovered, if you use the internet for business 50% of the time, then you can deduct 50% of your internet bill from your taxable income.

Client Lunches

If you go out to eat with a client and discuss business with them in any way, you can deduct 50% of the check off your taxes.

Cleaning Supplies

Use 10% of your house for business? You can deduct 10% of the cleaning supplies you use for your business space from your taxable income. I doubt toilet paper and dish soap is included in that, sadly. Save receipts though.

Retirement

Saving up with a 401K retirement plan? Part of that is tax deductible too.

Earned Income Tax Credit.

If you make below the poverty line for your household, you can qualify for an Earned Income Tax Credit, where the government pretty much cuts the tax that you owe them.

So there is a lot of things that you can deduct from your taxes if you are self-employed. So it starts off at 25% of your income, but by the time all the deductions are completed, it may be less than 10%, depending on your qualified expenses.


#2

That’s a great list!

If you have a home office and I assume you do, you have to be really careful not to trigger an audit.

The IRS has a set percentage you can’t go over with your home office deductions. It has to be just one bedroom for example, not half the living space. So figure out the percentage one small bedroom is of your total living space. If you have a 1000 square foot apartment for example you should only deduct 1/4 of that, the size of a small bedroom, for rent, cleaning, and utilities, or risk an audit.

If all your income is from fiverr, or the internet, don’t try to deduct lunches and car expenses.

Where the IRS asks for you type of work, you can simply put “internet services” rather than giving the details of what you do or your exact job on fiverr. It is enough that the IRS understands you earn your living on the internet.


#3

Agreed! This is why I am playing it safe. I was initially going to put a far smaller number but was informed that there was such a thing as being unnecessarily specific. So 20% works for me, as it actually accounts for a lot more than I intially was going to make it. But then again, I am new to all this freelance tax stuff, so I am learning as I go. :slight_smile:


#4

I was very happy with Turbotax when I made much less than I do now but having a tax accountant who takes care of everything is worth the extra $ to me.


#5

Seriously, people are willing to protest for stupidest of things but having your government do taxes is somehow a foreign concept?


#6

I think I missed something…


#7

It might be important to add if you have some kind of health, dental or vision care you’re paying for - to include that. I have a dental plan that I pay for out of my Fiverr earnings, and I add to that each year. I also include expenses like Grammarly, Copyscape fees and things like that. You can deduct some of your cell phone bill too if you use the phone to conduct business on it.


#8

Regarding rent deductions, you might want to be careful. Usually, this will only stand (at least in Europe) if you have a rental contract and one which does not have a clause in it saying that you can’t operate a business from your premises.


#9

Regarding “office space”, I don’t know about the US and the rest of Europe, but where I am, they might actually come, in person, and want to look at your working space (announced, though, so no panic, you’ll have time to clean up all your coffee mugs :wink: ). This is not an assumption on my side, first hand experience.


#10

Another one to add - if you use Fiverr (or other marketplaces) to buy services for your business, they are deductible too. So too are domain registrations, hosting fees, software you use in your work (like MS Office), a small proportion of repairs and maintenance on your property if you work from home, legal, professional, and accountancy fees, a small proportion of property tax, charitable donations, and bank charges.

Additionally, if you are an LLC setup as an S Corp, you can claim some of your income (In excess of what a reasonable salary would be) as a disbursement, and you won’t have to pay self-employment tax on that part.


#11

I so need to make a video detailing what happens when you try and do this in Malta.

Speak all you want, take a tablet and show them their own tax code, hire trained actors to act out how the IRD personnel should be processing your tax. - All it will ever result in is someone eating a savory pastry as you talk to them, pointing at the word ‘self-employment’ and saying, “YOU PAY YOUR TAX 3 TIMES A YEAR.”

That said, if you complain too much, there is a very real possibility someone will arrange a hit on you for making them lose face.

I so need to move to a non-Mafia nation.


#12

This sounds like good advice for life. Unfortunately, there’s no escape from “The Don” over here either…


#13

This is what I’m going to be doing this year. The tricky part of it is how much you decide is income, and how much you decide will be disbursement. The income part has to be reasonable, but there is no mention anywhere in the tax code what that reasonable amount is.

My accountant is setting up my payroll.


#14

This is the trickiest part for sure. The way I did it was to go to Payscale and search for the median salary of a freelance writer - I will take that as my salary, and the rest as a disbursement. The vital part here is to be able to justify it to the IRS, and I figure that is a relatively easy thing to backup.

In terms of what you do, I am not certain what you would search for - since I cannot think of an equivalent “employed” position? Would it be as an “Entertainer” (not to denigrate what you do, it’s just the closest equivalent I can think of?) Of course, another option in the absence of anything better, would just be to take the median salary across all industries as your wage, which looks like it is around $45K a year.


#15

Thank you, there isn’t even a listing for what astrologers make. Looks like $45000 is the answer. Taxes can eat one alive.


#16

Great lists…all

I use 2 rooms in my house exclusively as a voiceover studio and a graphic/media/editing studio so internet, electricity, part of my water as one bathroom is “in” the studio. There is nothing but business equipment and I’ve faced the IRS 4 years ago, so we now see eye to IRS. :-). I rarely have clients over, but when I do, it’s all office/studio contained. I also deduct business insurance, cleaning (as you mentioned), supplies and even through I don’t use my car for actual business I was allowed to deduct a portion of the car as advertising as I have a url, email address that’s unique to the rest of the business and I track sales generated from that url or email address in incoming client surveys, so if 5 percent of my sales come in from the info on the car, a percentage goes to advertising expense AND the mileage allowed when I go to the bank, my ups mail box I took the full expense of the sign and lettering in the first year. There was a case where a dentist wrapped is car/truck and tried to take 100% of the vehicle’s expense got smacked down.
My company actually owns my motorcycle which was painted in company colors and vanity plate which was all deductible as a one-time expense. I was able to deduct the money spent on Fiverr for logos, photo editing, videos, even though I can do them myself. Even the interest on my credit card on purchases that are for the businesses are tax deductible, A portion of my cell phone expenses too since the number is my business number too.
I wrote off the purchase of 200 comic book and movie rentals as continuing education as it’s “research” for my off-fiverr voice and multimedia career.
Before anyone jumps on me…I have a degree in accounting, keep meticulous records and I survived the first audit many years ago (although not without losing a bit of hair and the rest showing more gray than is fashionable), that’s how I know. No problems filing since.
Just saying there may be more to your deductions if you look deeper…legally!


#17

Are we getting the newly increased standard deduction this year or next?


#18

It will apply to 2018 earnings, which you will file in 2019.


#19

So on your LLC which you treat as a S corporation, what kind of yearly and monthly paperwork do you file with your state? When it makes a disbursement to you, what is the paperwork involved in that? I know we are getting to the nitty gritty of corporate entities here but just wondering how cumbersome this will be paperwork-wise.


#20

I write on corporate entities all the time, so have no problem with this… Here’s how my filing typically breaks down:

  • Pay estimated federal and state taxes on a quarterly basis - January, April, June, and September.
  • I normally pay around 25% - 30% of my “after expenses” earnings up to that point in the year.
  • File my annual report on a yearly basis, together with a fee paid to the secretary of state.
  • Prepare and file my taxes in March / April (I use TurboTax and really like it).

As regards disbursements, I haven’t actually used that yet, and plan to for the first time when filing my 2017 taxes (my 2016 earnings were not high enough to use the salary / disbursement method.) I believe there is a line on the tax return form to include this, and if I have any questions will likely hop over to reddit and ask an accountant there (I do not have an accountant myself).

Bear in mind too, that you need to file paperwork with the IRS to have your LLC treated as an S Corp for tax purposes.

Hope this helps!