Tax Deductions You May Miss as a Freelancer or Entrepreneur

If you’re a freelancer or small business owner, and you’re only using the 1040 form to do your taxes, you’re doing it all wrong.

You’re missing out on some very valuable deductions and expenses you could take, and if you’re not using a professional, you’re leaving money on the table. If you find you owe taxes each year, you’re definitely not doing it right.

My advice: find a tax professional you can trust and talk to them about using a Schedule C with your 1040.

Income Tax Monopoly SquareThe general rule of thumb is, if an activity costs you money to do the thing you make money at, you can deduct it. For example, I make a few bucks as a travel writer for the state of Indiana. This means I can deduct any expenses related to my travel-writing trips, such as mileage and hotels. A writer friend makes money from, and is taxed for, his book sales. This means he can take deductions for any readings and book signings he drives to, especially if they’re overnighters.

You’re going to be taxed on your income already, so you might as well reduce the amount the government takes by declaring each and every expense related to it.

Here are four important deductions you may be missing as a freelancer, independent professional, entrepreneur, or small business owner.

1. Mileage Related to Work

If you drive to client meetings, conferences, or other work-related events, you can deduct the mileage. However, this doesn’t include mileage driving to and from your regular work; you can only count special trips. Keep track of all your meetings in a calendar, and then list all the meetings and mileage in a spreadsheet. Turn all that in to your accountant and they can take care of the rest.

Erik, how exactly do you think I do this? —Cary, your accountant

Cary, I don’t know. Voodoo or physics or something? I’m a writer, I don’t pay attention to this stuff. This is why I depend on you. —Erik

I use Google Calendar and Google Drive, and I use Zapier to export all my appointments to a Google Drive spreadsheet. From there, I can clean it up, delete all personal/non-paying appointments, and then pop in the mileage for each appointment. This saves me roughly three hours from trying to do it all by hand.

Note: You can also take the mileage out of the company as non-taxable expenses. But once you do that, you can’t take it as a deduction on your personal return because it will be deducted on the business return. If you drive 400 miles to and from a conference, that’s roughly $200 in expenses. You can take the $200 in cash, or you can deduct it on your taxes. Ask your accountant which would work better in your favor. And if you pay for your gas with the company card, you can’t deduct your mileage either.

2. Cable and Mobile Phone

If you work from home, and you rely on the Internet to do your work (and who doesn’t?), you can deduct your cable/Internet costs. The same is true for your mobile phone. If you have a mobile number for clients to call, that’s another business-related expense, which means you can declare it. And if you keep a work-only landline, that’s also tax deductible.

(However, you can also keep your phone costs down if you use Skype as your primary means of communication. This also lets you keep a personal-only phone, and not have to worry about that second phone, or trying to total up the number of work minutes versus personal minutes.)

Remember, you’re not allowed to deduct costs if you’re reimbursed for them in any way. For example, if you work as a remote employee, and your employer pays your cable bill, you can’t turn around and declare it yourself.

3. Office Space

I found a low-cost office to rent, and it’s something I recommend, if it’s available where you live. In Indianapolis, we also have the Speakeasy, which is a shared co-working space. Other cities like Fort Wayne and Evansville also have co-working spaces. If you pay a membership fee or rent to be able to use that facility, that’s considered a deductible business expense. (Working every day from a coffee shop is not considered a business expense, however.)

If you work from home, it is possible to declare your home workspace on your taxes, but it can be rather tricky. There are formulas, and if you use part of a room to work, you need to measure the workspace, and there’s a formula to apply and more of that voodoo physics stuff Cary knows about.

It’s a bit easier if you dedicate one room, like a basement office, to your workspace. But if it’s the desk in a corner of the family room, that’s a bit more problematic. Talk to your accountant, but be prepared to justify it to the IRS, because this often raises flags with them.

4. Food and Entertainment

This is a tricky one. It’s not like the old days when you worked for a company, and you could expense big fancy meals with important clients. Deducting food costs on your taxes can be a problem if you’re not careful.

For one thing, says Cary, you shouldn’t buy food for “working lunches” on the company account. (My wife says the same thing, so this may not be a tax rule so much as a Toni-and-Cary-are-conspiring-against-me ploy.)

One reason is that you can’t deduct the whole meal, only your half. You can’t just take people out to lunch and deduct the entire meal on your taxes. It can also raise red flags at the IRS if they see a lot of entertainment expense deductions on your taxes. So keep this kind of spending to a minimum, lest you feel the cold, probing fingers of an audit.

The problem with doing your taxes yourself is that you may not know the latest rules about deductions and expenses. Basically, if you find that you owe money when you file your taxes, you need to speak with a professional. While you’ll have to pay the accountant, if you’re making a full-time living as a freelancer or entrepreneur, you could find your tax return is much bigger than what you could get doing it on your own.

Special thanks to my own accountant, Cary Hudson of Ashworth Accounting Services for helping with this blog post (and my business!). Cary is a CPA who lives and works in Carmel, IN. He specializes in working with small businesses for their tax and bookkeeping needs, and he’s saved me from hours of headaches for the last six years.

Photo credit: Alan Cleaver (Flickr, Creative Commons)

Speaking for Free Costs Money

I’ve been wrestling with a problem that many entrepreneurs and business owners face: the idea of “working” for free.

My wife, Toni, is a jazz singer who is asked to sing at no charge around the state. My photographer friend, Paul D’Andrea, is often asked to take a couple quick pictures as a favor, because “it’s so easy for him.” Other writer friends are asked to knock out a quick article on something or other “for the exposure.” And I’m often asked to speak for free by small companies and nonprofits.Speaking for free has a lot of hidden costs

While none of us are jerky enough to say “NO!” outright, it’s important that the requesters think about what they’re asking for. They’re not just asking for an hour of our time, there’s so much more that goes into it.

When you ask us to to work for free, here’s what it costs us:

  • Preparation time: My wife hours creates a new set list for every show, and rehearses it for 2 – 3 hours beforehand, in addition to her normal practice. Paul has to make sure his equipment is assembled, working, and fully charged. And I spend anywhere from 3 – 6 hours for a 1 hour talk. All of us do this whether we get paid or not.
  • Travel time: Driving to a local event can take 60 – 120 minutes round trip. I’ve driven up to 5 hours away for talks outside Indiana. Toni has driven 2 hours one way for a single show.
  • Gas: Cars do not run on good intentions, they run on gas, which costs $3.35 per gallon right now. It takes anywhere from 2 – 20 gallons to get to where we’re going.
  •  The actual event: Toni typically sings for 2 – 3 hours. Paul’s photo shoot takes at least an hour if it’s an “easy” one. A good writer will write and edit for 3 – 4 hours. I speak for an hour. None of this includes pre-event setup, which takes roughly an hour for any of us.
  • All of that leads to lost work time: We get paid for our jobs. That’s how we feed our families and run our businesses. When you total up everything it took to do that free concert, photo shoot, article, or talk, we spent 4 – 12 hours not doing client work. That’s anywhere from a half day to a day-and-a-half of billables that we didn’t collect from clients.

So what does that work out to be? How much would that be for you? To figure out your regular hourly rate, take your hourly salary (your yearly salary divided by 2,000 hours per year) and multiply it by 4 and 12 (the range of hours).

That’s what it costs for you to work for free.

Based on a $60,000/year salary, that can be $120 – $360 of lost revenue.

Would you take an unpaid day off work to volunteer at a nonprofit? Or to help a friend move? What about taking an unpaid day to attend a conference, and pay your own way to travel there (but receive a free pass)?

If you expect us to work for free, will you also give up half to a day-and-a-half’s wages to show your gratitude and share our plight?

But that doesn’t mean we won’t do it.

Now, having said all that, none of the people I mentioned have become such egotistical jerks that we would never, ever work for free. We will.

Toni will sing for free at certain events, because not singing there can work against her. Paul will take the pictures, and the writers will write the articles, because sometimes the exposure is more important. And there are still groups and events where I’ll speak for free, because I consider it paying my blessings forward.

But it wasn’t until I started looking at what it was costing me in lost wages for that free one hour talk that made re-examine whether I would start charging to speak at events. And every other professional I’ve talked to has wrestled with this problem. Hell, we all still wrestle with it, even after we “turn pro.”

Should we do something beneficial for someone because it’s the good and right thing to do? Or do we say no to some very special people because our top priority is to take care of our families?

Over the past two months, I’ve had to cancel two free engagements because they conflicted with two paid ones, and I had even committed to the free ones first. I felt guilty about it. So guilty that I almost turned the paid ones down. It was Jason Falls who reminded me that my first responsibility was always to my family, and that sometimes I have to make the unpopular, un-fun decision to take care of them, like saying no to people I want to help.

Taking care of family means I have to turn down some important events down. It means Paul can’t load his very expensive camera equipment into his truck for an easy photo shoot. It means Toni won’t load her entire PA system into her car for a free performance. And it means the writers won’t even turn on their computers for some free exposure.

These costs are why I charge for my speaking engagements, or at least ask people to buy copies of my books. That’s not to say that every talk I give will be a paying one, or that I’ll require the organizers to purchase 100 copies of my book.

But hopefully it will help you understand why I — and my family, friends, and colleagues — may say no when you ask us to work for a “quick freebie.” (Hopefully it will also help you understand you need to bring your A-game when you’re going to convince us that working for free is worth it.)

And of course, if we do work for free, a little thank you gift, like a Starbucks or Barnes & Noble gift card is always appreciated.

Photo credit: NoHoDamon (Flickr, Creative Commons)

Why Companies are Afraid of Social Media

“We don’t do social media, because people might say bad things about us,” the executive said. “If we have a Facebook page, people might leave negative comments on it.”

“They’re already saying bad things about you,” I said. “Whether you’re on it or not, people are complaining about you, and they’re telling as many of their friends as they can.”

The rest of the conversation went as expected. Reason after reason. Excuse after excuse. We’re not on social media because. . .  we don’t do social media because we. . . it’s only for young people. . .

In No Bullshit Social Media, we listed 28 different reasons companies are afraid of using social media: no money, no experience, no guaranteed results, we’ve never done it that way before, yada yada yada.

There are any number of reasons why companies are afraid, and there are only a few reasons why they shouldn’t be. But these reasons trump all the excuses any business can ever come up with.

1) Social media is not going away. It’s not a fad. It’s not something we’ll forget about. Social media has been brewing for the last 30 years, when Compuserve and Prodigy started as community bulletin boards. Or even before that when real computer bulletin boards were introduced in the 1970s. Companies may come and go, but real-time communication isn’t going anywhere.

2) Social media has gained wide acceptance faster than any other medium. It took radio 38 years to reach 50 million listeners; television took 13 years to get 50 million viewers. Facebook, on the other hand, added 100 million users in 9 months. Social media is only going to grow and get a stronger foothold in the way we communicate and receive information and news.

3) Social media is inexpensive. Facebook is free, Twitter is free, blogging is free, assuming you’ve got the time and knowledge to use it. If you don’t, you can hire people to manage it for you. It’s no different from hiring in-house or outsourced professionals to manage your TV ads, your websites, and your trade shows. The only difference is once you hire social media people, your overhead is mostly finished; the tools don’t cost anything to operate.

If you hire someone to produce your TV ads, there’s still the costs of actually creating them, and then buying the airtime. You can hire people to manage your trade shows, but you still have to pay the added costs of booth space and rentals, going there, working it, and coming home. Plus expenses.

4) Social media marketing can be measured. One big difference between social media marketing and regular marketing is that we can measure social media marketing through tools like Google Analytics and SocialMention.com (both free) and Radian6 and Vocus (both paid services).

How do you measure a billboard? How do you know how many people drove by, read it, and bought your product? How do you measure a TV commercial? How do you know how many people actually sat through the entire commercial and bought as a direct result? How many walked away after 20 seconds? 10 seconds? How many people never even saw it because they changed the channels?

With social media, we can tell who read a blog post, clicked a link, and then made a purchase. Mainstream media can give you estimates and guesses, but they can’t actually count. Social media can tell you how long someone watched a video or visited a website, when they clicked away, and where they went. Mainstream media can only guess at the numbers of viewers, listeners, and readers.

Social media marketing isn’t going away. And while it seems like everybody is using it, there are still hundreds of thousands of businesses that haven’t even considered it. It’s not too late to start. It’s not too late to create a Twitter account or a blog, and then talk directly to, and hear directly from, your customers. There’s nothing to be afraid of, and there are plenty of people to help you get through the rough spots.

Erik Deckers is the co-author of Branding Yourself: Using Social Media to Invent or Reinvent Yourself, and most recently, the co-author of No Bullshit Social Media: The All-Business, No-Hype Guide to Social Media Marketing. He is co-owner of Professional Blog Service, a ghost blogging and social media consulting agency in Indianapolis.

“My Customers Don’t Use Social Media” and Other Lame Excuses

Fellow social media pro Jay Baer, and author of The Now Revolution, is busting some social media myths with his latest post, Destroying the 7 Myths of B2B Social Media. Jay Baer

My favorite busted myth was “My Customers Don’t Use Social Media”. I hear that one a lot from businesspeople.

“That’s interesting,” I said to a business person once. “How do you know?”

“Well, because I don’t use it,” said this otherwise-intelligent business owner.

I wanted to say, “You drive a sedan. Does that mean all your customers buy sedans? You have two kids. Do all your customers have two kids?” But I didn’t, because I’m a nice guy.

However, had I known what Jay knows, I would have instead offered some pretty interesting statistics instead:

According to the recent Social Technographics® report from Forrrester, 81% of U.S. adults with an Internet connection use social media in some form or function. Further, last year’s Forrester study of B2B technology buyers found that they use social media nearly twice as much as U.S. adults overall.

In other words, if 67% of US homes have broadband access,, 81% of them are on a social network, or 54.27% of people with broadband access are on a social network.

That’s half your customers, half your vendors, half your competitors. And if social media is so cheap to use, and your competitors are already on there, they’re reaching your vendors and your customers more efficiently, more frequently, and more effectively than you are.

Don’t assume that just because you don’t use social media means that the rest of your customers are waiting to join social networks until you do. Just because you do or don’t do something doesn’t mean your customers will follow suit.

If you want more proof, Jay recommended that you take your customer email list, and see which of them are active on different social media accounts by using Flowtown or Gist.

Another way to see whether your customers are using social media is to do the following:

  1. Create a new Gmail account with your company name or your name. (You should do this if you’re trying Flowtown or Gist too.)
  2. Upload your entire customer list to Gmail. (Don’t worry, your original is still safe.) Merge any duplicates.
  3. Create a Twitter account (Twitter.com) or LinkedIn account.
  4. You’ll be prompted to import your email list to see which of your contacts are on that network. Follow those instructions and connect your Gmail account.
  5. Start connecting with/following anyone in your list.

Those are the people who are using Twitter and LinkedIn. My guess is that at least 25% of your list will be found on those two networks, and possibly more.

So why aren’t you communicating with your customers on this channel? It’s cheaper than any advertising or trade shows. It’s more effective than traditional marketing. It targets your audience better than direct mail. It’s new enough that people are still paying attention to it. And it’s got enough acceptance that it’s not going away.

Basically, if you think your customers don’t use this because you don’t like it, you’re making a big mistake. Social media is not going to go away, and it’s only going to get bigger. People said the same thing about the Internet, computers in the workplace, fax machines, and telephones. But newer, more technologically-daring companies are willing to try these things, and they’re going to leave you in the dust.

Not Every Social Media Consultant Knows What They’re Doing

I was tweeting with my friend and fellow social media consultant, Dana Nelson, a couple nights ago about a business presentation she was sitting in, when she quoted this piece of advice from the presenter.

“Posting your business on other business sites is lame – tagging business/ cross marketing does not work.”

Wait, what? Who said that, the business professor from Back to School?

Cross-posting doesn’t work? Creating visible partnerships is lame? Creating a referral network is ineffectual?

Look, there are a lot, a lot, a loooooooot of social media consultants out there. And they don’t all know what they’re talking about. It worries me that these people are spreading poor information out there. It’s like a volunteer sheriff’s deputy telling people you can’t be arrested for drunk driving if you’re wearing your seat belt. (Caution: You can be arrested for drunk driving, even if you are wearing your seat belt.)

And this 16-word piece of misinformation is a doozy, and so wrong in so many ways.

  • It’s a widely accepted fact in search engine optimization circles that promoting a business site on another site is going to give me some big search engine juice. Anyone who understands basic SEO knows that backlinks are what give your site a high search engine ranking.
  • Coke and McDonald’s would disagree with your views on cross-marketing. As would Pizza Hut and Pepsi. Or any movie studio with Happy Meal Toys and Burger King Kids’ Meal Toys. Or BarnesandNoble.com and Amazon. And any sponsors of any NASCAR or Indy Car racing team.
  • People buy from people they like, and accept recommendations from people they trust. If Dana recommends a good restaurant to visit, I’m going to believe her. Why? Because I like her and trust her. It’s the same with businesses. If a business I trust recommends the services of another business, I’m going to believe them. The smart thing for small businesses to do is to team up with allied businesses.
  • There are more business networking experts than there are social media experts (as hard as that is to believe). Nearly all of them will shout the praises of networking, referral sharing, and cross-promoting. And I’ll believe business networking experts who measure their experience in years and decades, not weeks and months.

This is just one of many reasons why you need to screen your so-called social media “expert” before you hire them. Especially if they blather on with inane bits of advice like this.