Boneheaded tax write-off of the week

March 25th, 2007

What your taxes pay forSince we’ve all got tax returns on the brain, I figured it was time for another tax-related post. Earlier this month, a friend of a friend of a friend told me she had a freelance web designer pal who deducts the time he spends tricking out his website as a tax write-off — after all, it’s advertising and marketing for his business, right? Basically the web designer pal of this friend of a friend of a friend would multiply his hourly rate (let’s say it’s $75 US) by the amount of hours spent spiffing up his site or blog (let’s say it’s 10 hours a month), thereby claiming $750 in business expenses for the month on his annual tax return.

I’ve said it before and I’ll say it again: I’m not a tax professional. But my gut told me this guy’s “marketing” write-off was a big fat no-go. (If not, I would have tried that tactic myself long ago.) My Friend the CPA confirmed as much, as did my friend of a friend of a friend’s Bookkeeper Pal. So we are not taking a cue from my friend of a friend of a friend’s web designer pal, who sounds like he needs to sit down with H&R Block — and quick.

In other words, we self-employed types can’t claim as business expenses the non-billable hours we spend marketing ourselves, sending out invoices, researching new clients, and the like. However, we can deduct some or all of the printing costs we incur for said marketing materials, money spent hiring a web designer, printer paper used to print our invoices on, dinners splurged on in an effort to woo new clients, magazine subscriptions purchased to stay abreast of industry trends, Internet connection used to research new clients, and so on.

But I’m not here to single out one freelancer’s ill-informed move. In fact, I’d now like to share with you some of the boneheaded tax write-offs yours truly has attempted to claim on income tax returns past (only to have her accountant laugh in her face):

  • Gas used to drive to a year-long, onsite temp gig — aka contract job, or permatemp assignment. (That’s like trying to claim the gas you use to get to your employee job, a big no-no.)
  • Groceries. (Since I’m not a chef or caterer, the IRS doesn’t care what I whip up for lunch each day.)
  • Drycleaning. (This only works if you’re a model or an actress or perhaps a magician’s assistant.)

Resources you can use:

  • If you’re not sure what constitutes a legitimate write-off, check out the IRS page on business expenses.
  • For some fantastic freelance tax FAQs, check out these tips and resources compiled by Debbie Ridpath Ohi of Will Write for Chocolate. (Full disclosure: Debbie includes this page from my blog.)
  • Do talk to an accounting professional. Really. Because you don’t want to mess with the IRS. And you shouldn’t take my word as gospel because — repeat after me, class — I’m not an accredited tax professional.

Entry Filed under: Ask the Cubicle Expat,This freelance life,Toolbox

10 Comments Add your own

  • 1. Amber  |  March 28th, 2007 at 1:19 pm

    This is so incredibly helpful to me right now. Thanks for the timely tips!

  • 2. Lynn  |  March 29th, 2007 at 4:01 am

    Excellent guide. Will be sure to send all US-based freelancers I know to this post.

  • 3. Arthur Stopes, III.  |  April 5th, 2007 at 5:38 pm

    Hello, Michelle:

    I heard you via radio this morning, and – while you may be
    expert at own-time management – you could certainly benefit by NOT referring to the “IRS page on business expenses”. WHY?

    The Internal Revenue Code is written in… Code. Naturally!
    I decode it. In fact, the IRS has actually changed – and even un-published – certain IRS publications (“Form W-4″ and some Treasury Regulations), to make it more difficult for such as
    You and the general public to figure it out. (!)

    You should know (for starters), what the IRS really means by the (legal) term, “business”. (Hint:You don’t have one.)

    An example of one who has a ‘business” per the IR Code is
    a “Member of Congress”, because the term is defined as:
    “the functions of a public office”. Do You have one of those?
    (See 26 U.S. Code, Section 7701(a)(26) – the I.R. Code.)

    Please call Me, at (510) 548 – 5238, at Berkeley, California state. (Not “CA” – that means a Federal POSSESSION in California state.) You see, it’s a verbal minefield, out there!

    Sincerely, Arthur Stopes, III.
    (Legislative Analyst and Writer (L.A.W.)

    P.S.: You also should NOT use the term “self-employed”; you
    “work for yourself”. I guess you acept “Form 1099′s”, too?
    (See , about REFUNDS.)

  • 4. Michelle Goodman  |  April 8th, 2007 at 11:38 am

    “interesting” comment above, though i’m not sure what reality it’s based in. i’m no tax pro, but word on the street is that if you don’t pay your taxes (as Arthur’s site suggests) you have to contend with garnished wages, property liens, and/or possible arrest warrants. i’m happy to take my accountant’s word for it.

  • 5. Adam  |  June 20th, 2007 at 2:13 pm

    I don’t know what marketing expenses are a write-off. If I run a profit loss statement the bottom line reflects what we made after our expenses. Surely some of those expenses are marketing expenses because we are a Marketing Company in Phoenix. So by write-off, do they mean “deductions applicable to the bottom line of our profit and loss”?

  • 6. Michelle Goodman  |  June 23rd, 2007 at 6:29 pm

    Adam, thanks for stopping by. I find it hard to believe a company with a site like yours doesn’t have an accounting team, or at least an accountant, but OK I’ll play along, in case someone reading this actually wants to know the answer to the question you raise in your thinly veiled spam…

    Note that you should not take anything I’m about to say as an actual accounting recommendation, as I’m not an accountant. Nor do I play one on TV… But as I understand it, any expenses (marketing or otherwise) you incur to land new clients and grow your business are tax deductible — e.g., direct mail brochures, trade shows exhibits, etc. But the expenses have to be relevant to your business — meaning you can’t write-off a haircut you get to impress clients, unless maybe you’re a supermodel. Capiche?

    But like I said, I’m no accountant, so I can’t actually tell you how to do your taxes. If your company doesn’t have an accounting department, or at least a bookkeeper, I suggest you get one — stat. You can also learn a lot on the IRS website: http://www.irs.gov

  • 7. cheryl  |  November 1st, 2007 at 11:20 am

    As a freelancer you cannot make deductions based on “time”, only on actual expenses incurred. You can’t get money back if there was no money spent. So, while the web-tinkerer can’t deduct the monetary eqivalent of his time, he can deduct any actual expenses related to improving or posting his site, such as hosting fees, domain names, and purchased fonts and software. Similarly (and unfortunately so), you cannot make deductions for time donated, or “pro-bono” work for non-profits.

  • 8. Michelle Goodman  |  November 1st, 2007 at 12:04 pm

    cheryl, agreed.

  • 9. Modesty  |  June 19th, 2009 at 12:08 pm

    I’m a freelance graphic designer. I have a friend who is a self-employed editor. She founded her own company and hires herself. This is moslty so that she can pay into her own IRA, or something like that. I’m thinking about doing it myself, because as she explaines it, sounds like a good idea. Is it a good idea? What would be the advantage and disadvantage founding a “LLC” and hiring yourself? Wouldn’t it be like working for any other company? Same tax deductions for both “LLC” AND “employee”? What about claiming uneployement?

    Thanks in advance.

  • 10. Michelle Goodman  |  June 25th, 2009 at 8:02 am

    Modesty, I don’t know the details. see http://www.nolo.com or http://www.irs.gov or talk to a talk professional.

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Hi, my name's Michelle Goodman and I've been freelancing since 1992. I'm author of My So-Called Freelance Life and The Anti 9-to-5 Guide. Read my full bio here.

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