Tax Write-Offs 101: What They Are and How They Work
The Gist
Tax deductions (also known as “tax write-offs”) are business-related expenses that can be subtracted from your taxable income, lowering your tax liability.
Tax write-offs are essential to maximizing your tax savings as an independent contractor.
It’s important to track all your business-related expenses so you can accurately claim your tax write-offs.
When tax season rolls around, you’ll want to have all your expenses and earnings in one place instead of chasing down receipts and invoices at the last minute.
In This Article
In Short
Are you an independent worker? Congrats on joining a growing rank of Americans who have taken their financial destiny into their own hands! Whether you’re a gig worker, rideshare driver, 1099 employee, freelancer, or you just started your own online store, you are now your own boss — how exciting is that? Of course, that means you also have to be your own business, so it’s important to stay on top of the little details like expenses and tax write-offs.
So, what’s a tax write-off and how does a tax write-off work? Well, you’ve come to the right place. We know you’ve got a lot on your mind — big responsibilities come with the freedom of an independent worker’s lifestyle. We put together this guide to help you maximize your tax savings and stay organized as you enter the exciting world of running your own business.
What’s a Tax Write-Off?
Put simply, a tax write-off (a term used interchangeably with “tax deduction”) is a business-related expense that can be subtracted from your taxable income. Business expenses can include advertising, computer equipment, subscription services, travel and meals, and more — depending on the industry you’re working in.
Other common terms for “tax write-off” or “tax deduction” are:
business deduction
exemption
tax break
write-off
write-down
What Is Taxable Income?
Your taxable income is the amount of your earnings that you owe taxes on. To figure out your taxable income, you (or your tax preparer) will take your “gross earnings” (your total pre-tax, pre-expenses earnings) and subtract (or deduct) your expenses, certain taxes paid, and other state, federal, or local deductions or credits that may be applicable to your tax situation.
For instance, if you made $72,500 and had $16,500 in total business expenses, you would only owe taxes on the $56,000 in profit you earned.
How Does a Tax Write-Off Work?
The best way to explain this is to think big. If a shipping company owns 30 trucks, then every year, they will incur a number of (very large) expenses related to those trucks, like regular maintenance, registrations, tolls, and parking fees. When tax season rolls around, that company can write off a large portion of these expenses against their gross, or total, earnings. This is because you typically only owe taxes on your net, or post-expense, earnings.
“That’s fine for a big trucking company, but what’s a tax write-off and how does this apply to me?” Well, because you’re an independent worker, many of the same financial tools available to that large corporation are also available to you!
For instance, if you’re a rideshare driver, your mileage and gas expenses, as well as any payments you made for licensing or maintenance, can be at least partially written off. Or maybe you have an online store selling miniature hats for cats — your online advertising, hat-making materials, and other expenses can be deducted from your taxable income.
Depending on the nature of your business, many purchases and expenses can be written off, including:
Gas
Equipment maintenance
New equipment (like phones, computers, or accessories)
Online subscriptions
Meals (where applicable)
Home office expenses like:
A snazzy standing desk (or a regular one)
An ergonomic desk chair (trust us the one you’ve got is past due for a replacement!)
Pencils, paper, and other supplies
A portion of costs for mortgage payments, electricity, internet, etc.
The easiest way to keep track of your independent contractor or freelance expenses and maximize your tax savings is with the Stride App. This one-stop app helps manage and track your earnings and expenses throughout the year, meaning when tax time rolls around, you’ll be ready to file your taxes early so you can get back to business.
What Paperwork Do I Need for Tax Write-Offs?
Depending on your work situation, your clients or the app you use for payment (like Uber or Venmo) might send you a 1099 form, like the 1099-NEC. 1099s are used by companies to show how much money they pay you throughout the year. Save any 1099 forms you receive at the end of the year, as this will save you a lot of time and headaches when you prepare your taxes.
If your business doesn’t operate through a third-party payment application or you’re accepting payments directly, you’ll need to keep track of all of your earnings. The Stride App can keep track of your earnings, expenses, and mileage all in one place.
Is Self Employment Tax Deductible?
One thing to be aware of if you’re freelancing, starting your own business, or becoming an independent worker is the self-employment tax. More formally known as SECA (Self-Employment Contributions Act) tax, this payment basically covers your contributions to Social Security and Medicare. By contrast, for W2 workers, contributions to Social Security and Medicare are automatically deducted from your paychecks.
But is the self-employment tax deductible from your taxable income? You’re in luck! Fifty percent of your payments toward SECA can be deducted from your taxable income on your 1040 form.
Keeping track of your tax payments throughout the year, like quarterly estimated taxes, can add up to big tax savings the following April. Make sure you’re tracking your earnings and expenses with the Stride App to save time and maximize your tax savings!
How Does the Stride App Help Track Independent Contractor Expenses?
Being an independent worker, gig worker, starting your own online business, or freelancing is a uniquely liberating proposition. You become your own boss, meaning you can set your hours, take the jobs you want, and take time off whenever you see fit. With this flexibility comes additional responsibility, especially if you want to maximize your tax savings.
You deserve an expense tracking app that works as hard as you do so you can focus on doing what you do best. The Stride App does just that. Try it today and save yourself the headaches of pulling together all your receipts when tax season rolls around!
