As an independent contractor, tax issues can quickly become complicated. Between income tax, self-employment tax and other taxes, it's easy to end up paying too much in tax if you don't understand all the deductions available.

But tax breaks exist for a reason: They're designed to help ease the burden on freelancers and small business owners who provide valuable services. As a freelancer, you'll need to pay income tax and self-employment tax.

In this article, we look at six of the most valuable deductions that, if taken advantage of, can save you $1,500 or more each year. Strategically using available deductions will reduce your taxable income, thereby reducing the amount you actually owe.

Therefore, proper documentation and understanding of these deductions will provide significant relief, allowing you to keep more of your hard-earned money.

Save the wait: 6 tax breaks you can’t miss

Now that we're ready, let's dig into the deductions themselves, those little-known gems that can provide significant savings each year. Now read on to reveal them.

1. Home office deduction

As freelancers, our homes are more than just a place to relax after get off work. This is often where the magic happens, the creative hub where we conceptualize projects, communicate with clients and manage the backbone of our business.

Let’s take a look at what costs you can consider when calculating this game-changing deduction:

● Rent/mortgage costs

● Electricity, gas, water and other public utilities

● Door-to-door repair and maintenance

● Decorate to facilitate work areas

● Property taxes and insurance

By deducting home office expenses, you can save more than $500 a year that you would otherwise owe the Internal Revenue Service (IRS). Every amount, no matter how small, adds up to a big savings!

2. Equipment and accessories

As freelancers, the tools of our trade range from computers and software to printers, cameras, machines, instruments and other niche investments such as pottery wheels or lighting kits. The IRS allows us to deduct the entire cost of many of these assets in the same year we purchase them!

Here are some common assets that can be fully depreciated:

● Computers, laptops, tablets

● Printers and scanners

● Special software and network services

●Cameras and photographic equipment

●Musical instruments and equipment

● Drilling, sawing, kiln and other machines

Annual inventory of equipment and careful maintenance of complete purchase records are key to supporting deductions in the event of an audit. But if you do it right, you can unlock hundreds every year in your pocket!

3. Health insurance

As sole proprietors, health care is undoubtedly one of our biggest financial burdens. Compared to employees at larger companies, we pay all of our premiums ourselves, with no employer contributions. The costs can be daunting, especially for those with families and pre-existing conditions.

Not all medical expenses qualify, but the following are usually covered:

● Individual and family health insurance plans

● Dental and vision insurance premiums

● Some medical expenses, such as prescription drugs and deductibles

Track all premium payments and related medical expenses throughout the year, making deductions easy for your accountant.

Consider maintaining a dedicated medical expense account or credit card to easily take advantage of these benefits. Our health is priceless, but at least the premium burden can be lessened through strategic deductions.

4. Retirement investing

As solopreneurs, we often get so caught up in the day-to-day demands of our work that long-term plans fall by the wayside. However, it's crucial to save for retirement, even if retirement seems far away. Today, smart retirement investments can pay off through deductions, resulting in real tax savings.

Plans like this open the door to deductions while creating future security:

● SEP IRA

● Separate 401(k) Contributions

● Simple IRA

● Certain pensions and annuities

It takes some effort to build a future non-taxable income stream today, but you'll reap exponential benefits later while immediately reducing your taxable income.

5. Business travel

As a freelancer who travels frequently, you may occasionally be required to attend gigs, conferences, or client meetings. I used to cringe knowing that flights, hotel rooms, and Uber rides would add to the cost of my business.

But you soon realize that business travel can actually reduce your tax bill!

Calculate these common travel expenses for your next business trip:

● Air tickets

● Accommodation and hotel accommodation

● Car rental, parking, tolls

● Public transportation such as trains and taxis

● 50% of meal charges

Real-time capture of receipts combined with careful expense reporting makes documentation a breeze for later reference. So prepare for future travel and know that necessary commuting can pay off with strategic deductions when filing your taxes!

6. Further training

As sole proprietors, our success depends largely on our expertise and the bread and butter we sell to our customers in exchange for income.

But as the industry develops, professional knowledge needs to continue to improve. Investing in our largest assets through continuing education can also help reduce our taxable income.

Expand your expertise and reduce taxes by deducting:

● Tuition and registration fees

● Books, manuals, digital courses

● Travel to attend seminars and training events

● Photography workshop

● Online tutorials and skills development platform

The Continuous Learning Deduction incentivizes us to specifically develop our skills over time, expanding our knowledge base while reducing our tax burden. So this year, commit to improving your professional knowledge and skills!

In conclusion

By taking advantage of these and other deductions, freelancers can save hundreds or thousands in tax time each year.

As well as the pure financial savings, proper documentation can minimize audit risk and give you peace of mind that your tax planning fully complies with complex self-employment rules.

So take advantage of these helpful deductions as well as general small business financial best practices. Schedule an annual tax planning meeting to analyze specific changes and opportunities in your freelance business.

With this strategic foundation, you can keep more of your income where it belongs to support your life and work.