freelance id tax write offs

greetings coro-floaters !

i have a question regarding freelance id work in the u.s., which i am involved in now. i’m wondering what items you can use for tax write offs while working independently as an industrial designer. for example, if i was to go out and buy and nice big cintiq tablet, how much of that can i write off as tax at the end of the year ? what about other computer gear and transportation ? i know i should be talking to an accountant about this, but i would like to hear of your experiences anyway…

as far as i know you have to determine how much of the gear is used for personal vs professional use. so let’s say you used your cintiq for a total of 100 hours and 40% of it was professional, you could write off 40% of retail cost…

don’t quote me on this but i seem to recall it being somethinig of the sort… same thing about rent… but then there are restrictions in terms of how the space is actually divided… the work space has to be clearly separate from the living

Rent and utilities are divided by the amount of the space exclusively used for business. Generally I don’t get to write off much because things last much longer now switching to mostly digital. Regular bond paper and markers aren’t very expensive the way I use them and I’m transitioning over to the digital sketching thing so now I hardly have anything to write off except for the website when it goes up (advertising/marketing), industry books/mags, professional fees (idsa, etc.), transportation and meals to meet new clients/occasional meetings (but I can’t do my monthly train pass I use to get to a place where I consistantly work inhouse for a standard week (not supposed to anyway)).
Go to the irs site and get the pdf’s for the instruction booklets (they start with “i”) for information for most of them. Unless you’re constantly buying materials (foam, paper, markers) or are constantly flying around, there isn’t a whole lot you can.

There are special rules for software and equipment purchases (computer, cintiq) about depreciation and ammortization, basically some way of spreading it out over a couple of years instead of one. But if you start freelancing, the stuff you get within the first 2 years can be written off right then up to a certain amount I believe.

For a typical 1 person operation, those costs should be so low that it probably wouldn’t be much of a deal to write it all off that year.
Keep all of your reciepts and be honest. If you did something wrong they’ll let you know at the audit! (joke)

I’ve always filled a 10-40 when doing my taxes each year, so I’ve seen the exemptions section, but never have had to use it yet. I would like to know exactly how much of that example that madhero gave (40% time of the price of a Cintiq) is actually paid for by the IRS?

Seeing that currently only the Cintiq 21UX is available in the USA I’ll give the following example:

Cintiq 21UX = $2,499.00
I use it 40% of the time for freelance (professional) work
I can write off = $999.60 (not figuring the taxes I paid for the Cintiq 21UX)

The bottom line is that the IRS will pay $999.60 of the Cintiq, and I only have to pay $1,499.40 out of my pocket in the end? Is this correct, I have no clue how exemptions work? Please let me know, because I’m considering doing some freelance work here pretty soon and would consider buying a Cintiq 21UX if this is the case.

Write offs are only to get you to a lower tax bracket after calculating total capital gains. It’s not a dollar amount of the item but the overall percentage you will be taxed.

Thanks for the tip! That makes sense.

Write-offs affect how your income is taxed. They do not create a situation where the IRS “pays” for anything.

Based on your example, you’d save about $250 in tax payments with a write off of $999.60. While this math is not EXACT, I’ve found that you save about 25% of the amount you write off (because you’re no longer paying taxes on that income.)

Hope that helps. I would recommend talking to an accountant or tax professional if you plan on freelancing a lot, or if you plan on making liberal use of exemptions/deductions.

Nah, it won’t be a lot of freelance work. Just enough to get me some toys like a Cintiq, a new computer, and software. Else the money is great and keeps building up in my savings account, which is always nice too! I value my free time.

I definitely go the accountant route. It is well worth it… think of it this way, if it takes you 20 hours to do a complicated filing (employer income+freelance income - write offs) that could have been another freelance job, which would have paid for the accontant… I just save all my receipts and categorize them for her. So easy.

My wife is an engineer. She loves figuring out complex math problems, which I find strange. So I’ll let her figure out the 1099, she’ll love it. Baada boom, baada bing!

By the way, do all of you who collect extra income whether it be freelance work or some other type of work like rubbing off some punk that’s embezzling money from some major crime syndicate family file a 1099 to report that income?

I’m curious if everyone files a 1099, even if they only make like $500.00 for a couple of quick ideation sketches.

score

The people you work for have to report what they pay you if it’s over a certain amount something around $400 I think. That, and/or you have to file if you make a total of over $400 for the year (I hope so). So if they’re reporting it, you had better report it or it’ll come bite you big later on.

skinny,

Thanks for the information on the income limit. The last thing I want right now is the IRS auditing me.

FYI: You’re required to report income with a 1099 if you earn $600 or more from any one source. So if you only earn $500 for “rubbing” a problem then neither you nor the “family” are required to report it.

BTW: “Professional services” such as accounting fees can be deducted, which can help offset their costs as well.

NATE,

I knew you had a little “family” in ya.

Thanks for clearing up the IRS income limit and accounting tip.