Write offs if using standard deduction

[keck]

I have a question about deductions as a freelancer. I pay quarterly taxes and make in the 40-55k range. I don't do itemized deductions, because they don't surpass the standard deduction of 12,000. I've been told that you can still write business expenses off, how can I do this?

[JandKit]

Hi keck!

If you are engaged in a business with a profit motive, you can file as a self employed person and write off any expenses that are legitimately associated with the income that you received. Having the standard deduction plays no part in whether or not you are self-employed.

[Donna F 77 · Accepted solution]

You have been told correctly that you can deduct business expenses even if you don't itemize deductions.  They are two completely separate items on your tax return.  Itemized deductions are basically personal deduction amounts that you are allowed if they add up to more than the standard deduction.  Everyone is entitled to claim either the standard or itemized deductions.  Business expenses are only allowed to be deducted by individuals reporting self employment income and expenses on their tax return.  These are reported on Schedule C.  The entire Schedule C is basically a Profit & Loss statement for your business.  It shows all income of the business and all expenses of the business.  The net income (or loss) from the business is then carried over to Schedule 1 of your tax return.

[KochuK]

Hi keck,

Freelancer reports business income and business expenses on Schedule C. Net income (loss) is on Schedule 1, line 3, which is part of Adjusted Gross Income.

So the direct business expenses vary depending on your actual out of pockets expenses and others, such as standard mileage vehicle expenses, business cell phone usage, office expenses/supplies, etc. Please refer to form and instructions.

https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

After adjusted gross income, depending on your filing status, there is a standard deduction, for example, Single filing status for tax year 2021 is $12,550. You get this regardless if you have net business income.

Hope the above helps. Thank you.

[keck]

Thanks Donna!

So I am a freelance designer and photo production (majority of my income is 1099s). Thanks for clarifying the difference between standard deductions and schedule C. Just to clarify: in Schedule C I could write off things such as software cloud subscriptions ( Adobe), technology purchases for business and cloud storage services? If I work from home but don't claim that as a business can I add internet bills to this? What about transportation? 

Also- I have paid one person only $100 for assistance with work. Do i have to do anything special with this since it's a low amount?

[DonnaD2020]

You are correct -- items you could claim on Schedule C would include software cloud subscriptions ( Adobe), technology purchases for business and cloud storage services.  If you operate your business from home, you may be able to claim Business Use of Home on Form 8829.  In order to claim the internet expenses directly on Schedule C, those expenses would have to be explicitly for the business.  Transportation is a deductible business expense as well.  If this is mileage on your personal vehicle -- there are two methods to determine the expense -- standard mileage rate and actual expense.  Generally I recommend using the standard mileage rate so there is less hassle for recordkeeping.

[DonnaD2020]

The $100 would be considered Contract Labor.  You would only be required to file a 1099-NEC for that contractor once you had paid $600.