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Updated for tax year 2022.
You own a thriving graphic design business. Perhaps you create eye-catching logos or comprehensive commercial websites. What you may not spend too much time on is thinking about filing your taxes as a freelance graphic designer.
As an independent contractor or freelancer, you might be able to lower your income (and consequently pay less tax) by claiming certain business expenses as deductions on your annual tax return. You would report that information on Schedule C (Form 1040), Profit or Loss from Business.
According to the Internal Revenue Service (IRS), your activity qualifies as a “business” if your primary purpose is for generating income or profit. You also have to be involved in your venture with “continuity and regularity.” A hobby or sporadic activity is not a business.
If you can justify that a business expense is both “ordinary and necessary,” it might be deductible. The IRS defines an ordinary expense as one that is common and accepted in your trade or business (here, graphic design). An expense is necessary if it is “helpful and appropriate” for your trade or business. It also does not have to be indispensable to be considered necessary.
When claiming expenses for your income tax return, make sure they are directly related to your graphic design business as a sole proprietor, and not for some other business you might operate or for your personal use.
Computer
The most obvious tool you need (and probably the most expensive) is your computer. Fortunately, you can claim it along with any monitors, printers, and other hardware as a tax deduction. The full cost of the item is tax-deductible as long as you use it exclusively for business. If you also use the item for personal use, your deduction is limited to the business use percentage.
When it comes time to file your return, there are two different ways you can deduct those items. You can choose to depreciate them and spread the deduction over a number of years, or you can write the entire cost of the item off on the return of the year you purchased the items.
Graphic design business expenses
According to Jodi Neufeld, web and graphic designer at Jodi Neufeld Design, these are a few expenses freelance designers can deduct when filing taxes to reduce that tax bill:
- Website hosting
- Cloud storage
- Email accounts
- Fonts, graphics, and templates
- Courses, classes, and training
- Education subscriptions such as Lynda.com or Skillshare
- Instagram analytics programs
- Paid ads on social media such as Facebook, Instagram, and Pinterest
- Software subscriptions such as Adobe Illustrator, Photoshop, and InDesign
- Client resource management tools such as Dubsado
- Project management software
- Software to share content with clients, such as Contentshare or Invision
General expenses
Graphic design business owners usually have some of the same general expenses that other business owners have, for example:
- Payment processing fees
- Legal and other professional services
- Business licenses and registration fees
- Office supplies and postage
- Business insurance
Business use of your home
If you work at a home office rather than at a commercial studio, you may deduct some home-related expenses. You can report those direct costs on Form 8829, Expenses for Business Use of Your Home. You can also use the simplified method to calculate the business use of your home as described in Schedule C form instructions.
Recordkeeping
The most important piece to filing taxes as a freelance graphic designer is keeping complete and orderly records of all your income and expenses. Good recordkeeping will make completing your annual income tax returns much easier. And you don’t have to get fancy with your recordkeeping. A simple spreadsheet documenting all activity works. Just make sure it includes all purchases, dates of expenses, business use, time spent completing a task or job as well as any revenue earned.
It’s also critical to keep a log of receipts, invoices, and any other documentation to back up your purchases. Having that information on hand will help you if the IRS has questions about your returns, especially your expense deductions.