20 Tax Deductions for Web Designers and Developers
Tax time can definitely be one of the more joyless parts of being self-employed. It’s probably no surprise that a Lending Tree survey from 2020 found that 54% of people don’t look forward to filing their taxes.
It’s understandable. You work so hard all year, you pay your quarterly tax payments to the government, and then you have to dig through an entire year’s worth of data and report everything point by point? Ugh. No thank you.
But what’s interesting about the Lending Tree survey is that 58% of respondents expected to get a tax refund. I’m willing to guess it’s because they knew how to maximize their tax deductions.
As a freelance web designer or developer, there are a number of deductions you can claim in order to reduce your taxable income and walk away with a refund by April. And, honestly, doesn’t that sound great right now? I bet a lot of us could use some extra money.
Below, we’re going to look at 20 of the tax deductions you should be taking advantage of.
20 Tax Deductions to Claim on Your Tax Return
Your taxable income is calculated as such:
Total Income – Tax Deductions = Taxable Income
The greater the deductions you have, the smaller your taxable income becomes. If that number ends up being less than what you originally estimated at the start of the year, you could walk away with a very healthy tax refund.
As you prepare your taxes, here’s a checklist to ensure you’ve claimed all the deduction opportunities available to you:
1. Home Office
If you work from home (which most of us did in 2020), deduct the cost of your home office on your tax returns. That said, there are two stipulations to this deduction.
- Your home office must be where you primarily do business.
- It has to be exclusively used for business.
Simply provide the dimensions of your home office space — especially if it’s a small area carved out of a larger room — and enter them into the provided fields. The IRS will do the rest.
2. Internet Fees
Your home internet costs cover both your work hours as well as your off hours. So, you’ll need to do the math to figure out how many hours you spend online for work as a percentage of your total time. Then, deduct that percentage of your annual Internet fees on your tax returns.
3. Utilities
You need the electricity, gas, and/or heat to be working in order for you to comfortably do business in your home, right?
Use the same percentage as your internet fees to calculate your utilities deduction.
4. External Workspaces
For those of you who don’t work from home, you can expense your external workspace costs. This includes:
- Office rentals, including any associated utilities and wifi
- Coworking space fees
- Other external workspace costs (e.g. coffee shop purchases, hotel or restaurant fees)
I realize this point might not feel as relevant for 2020. However, if you spent any time working outside your home when things were “normal”, make sure to claim those deductions no matter how minor they may seem.
5. Equipment
Typically, you buy business-related equipment with the intent of using it long-term. This includes:
- Furniture like desks, chairs, and lamps
- Hardware like printers, scanners, and screens
- Devices like computers, smartphones, and tablets
The IRS wants you to deduct these as depreciated assets. That way, the cost of the item is written off in small increments over the years.
6. Supplies
Office supplies can be deducted as regular expenses so long as they are meant for short-term use. This would be items like printer paper and notebooks.
7. Website-related Costs
Your website is a critical part of your business, in general. However, I’d argue it’s more so the case when most people are stuck at home and spending unusually large amounts of time online.
So, any money you spend to keep your website up and running should be deducted. This includes:
- Web hosting costs
- Domain name services
- CDNs, SSL certificates, and other power-ups
- Plugins
- Themes or templates
If you pay someone to maintain your website, you can include those fees as well.
8. Marketing & Advertising
You got to spend money to make money, right? Well, if you’re spending any money to market or advertise your business, you can deduct those costs, including:
- Social media ads
- Google ads
- Sponsored content on other sites
And since in-person meetings and networking weren’t really possible this past year, you likely spent quite a bit of money on marketing.
9. Software & Apps
Automation is the key to success (and to not drive yourself crazy trying to manage everything on your own). Any software or app you use to design websites or manage your business can be deducted.
For many web designers and developers, this is going to be one of your biggest categories. Here are some of the apps you might expense:
- Professional design software
- Stock content websites
- Client onboarding tool
- Wireframing app
- Prototyping software
- Cross-platform testing tool
- Accounting software
- Tax prep software
- Marketing automation software
- Social media management software
- CRM
10. Payment Processing Fees
With most payment processors (think PayPal and Stripe), you’ll be charged a 2.9% fee on every transaction. When clients directly wire payments to your banking account, you can expect wire transfer fees there as well.
Keep track of these fees so you can deduct them as the cost of doing business!
11. Professional Assistance
Have you hired contractors or employees in the past year? You can include those associated costs on your tax returns.
In addition, you can write off other professional assistance from people like lawyers, accountants, and business coaches.
12. Networking & Enrichment
In order to get ahead in any field, you need to always be strengthening your skills and working on acquiring new ones. You and your business also benefit from making new connections.
If you had extra time on your hands last year, or were simply looking to shake things up, you may have taken advantage of the overabundance of virtual networking and educational opportunities.
If that’s the case, then you can write off any related fees. For example:
- Taking courses
- Attending professional conferences
- Signing up for webinars
- Attending local meetups
- Joining professional associations
Of course, if you attended any events pre-pandemic in-person, you can write off all associated costs as well, including attendance fees, meals, lodging, travel, and upgrades.
13. Travel-related Expenses
Have you had to travel for work in the past year? If not, then move onto the next deduction.
If you have, then know that there are certain expenses you can deduct if they’re directed related to your job:
- Vehicle mileage and gas
- Parking
- Transportation
- Lodging
- Moving
- Meals and entertainment
14. Health Insurance
While you can’t write off health insurance if you received it through an employer or your partner’s employer, you can write off insurance premiums if you purchased a plan through the marketplace.
15. Professional Insurance
There are other kinds of insurance you might need to keep you and, specifically, your business safe. You can write these off, too:
- Liability insurance
- Renter’s insurance (for your home office)
- Auto insurance (if you drive your vehicle for work)
If you have employees, workers’ compensation insurance is also deductible.
16. Professional Licenses
Depending on where you work and what type of business you operate, you may need a license for it. If you pay for a business license through your state or have incorporated your business as an LLC, you can write these costs off.
17. Retirement Plan Contributions
Every dollar you put towards your IRA – up to 60% of your income – can be deducted. This doesn’t necessarily need to be money from your business either. If you transferred your stimulus payments to your IRA, for instance, that counts, too!
18. Donations
Cash contributions you make to a charitable organization like churches, nonprofit foundations, veterans’ organizations, and so on can be deducted.
19. Self-employment Tax
Freelancers are required to pay self-employment tax. Your tax prep software should calculate this on your behalf.
If you’d like to figure it out on your own, use the Free Income Tax Calculator. Enter your gross salary, location, and filing status. Then, scroll down to get your FICA, the total you pay to Social Security and Medicare. You can deduct half of this.
20. Unpaid Invoices
This one really depends on how you issue and handle invoicing. For instance, if you use accrual accounting, you can claim your unpaid invoices. If you use cash basis accounting, you can’t.
Accrual accounting isn’t common for freelancers though. You would need to record all your income as received, regardless of whether the invoices had been paid for.
There’s a much better chance you’d be operating this way as an agency. Even then, it’s not always the case since it’s much easier to manage your cash flow when you operate as a cash basis business.
Wrap-Up
As you can see, your professional expenses actually do a lot more for you than just help you grow and support your business. They can help you pay less in taxes and even get you a refund from the government come tax time.