Freelancing as a virtual assistant can often be taxing (no pun intended). With endless responsibilities, including bookkeeping, managing traveling arrangements, and responding to emails, virtual assistants know all about working under pressure. But, on top of managing client responsibilities, virtual assistants are also responsible for their own administrative activities, including filing their own taxes.
With an endless workload, managing expenses and filing your own tax returns can sometimes feel a little overwhelming. And you may not be aware of all of the tax write-offs you are eligible for. Indy wants to help freelancers, so in this article, we’ll walk you through how to file your taxes as a self-employed virtual assistant and the most common write-offs you can use to deduct your expenses, for a smoother and stress-free tax season.
What Taxes Do Virtual Assistants Have to Pay?
Let's start with the basics. Virtual assistants are considered self-employed. Because of this, you are responsible for 100% of your taxes. As applies to any other freelance profession, there are three types of taxes you may have to pay as a virtual assistant.
Self-employment tax
Freelancers, small business owners, and independent contractors, no matter the industry, are required to pay self-employment tax.
All earners in the US, self-employed or in traditional employment, pay into FICA (Federal Insurance Contributions Act). If you're in a traditional 9 to 5 job, you pay 7.65% of your paycheck in FICA taxes. Your employer matches this, and also gives the IRS 7.65%.
If you are self-employed, you will need to pay both the employer's and employee's contributions, meaning you must pay 15.3% of your paycheck in FICA taxes. For example, let's say your net income from freelance writing is $1,500, then you will need to contribute $229 (15.3% of $1.500) to self-employment tax.
Income taxes
Everyone, whether self-employed or in traditional employment, is required to pay income tax. This means, on top of your doubled self-employment tax, you must still pay income tax.
However, there are a few deductions you can claim, which we will share further in the article.
Quarterly payments
If you expect to owe the IRS more than $1000 in taxes (in a year), you need to pay your taxes in four installments. This means you will need to pay estimated taxes four times a year, unlike most taxpayers who pay once at the end of the tax year.
Freelance writing income can vary, whether it's from freelance projects or book sales. If you're not sure how much you will owe, you can calculate your estimate, using your previous year's tax return.
Additionally, you can use Form 1040-ES on the IRS website to figure out the estimated tax.
Generally, the due date for quarterly tax payments is on the 15th of April, June, September, and January. However, if the 15th falls on a weekend or bank holiday, the deadline is pushed to the following business day.
What Expenses Can I Deduct as a Virtual Assistant?
As with many other small businesses, self-employed virtual assistants can accrue multiple expenses from day one. From software subscriptions to materials, the chances are you are paying out-of-pocket for these costs.
When starting out, one of the most crucial things to remember is that everything relating to your earnings and outgoings should be tracked. Not only is this a requirement under IRS guidelines, but it also helps when deducting your expenses on your tax return.
Let's go through some of the deductions you can claim.
Productivity software subscriptions
This includes software you may use to track invoices, create timesheets, and schedule meetings. As long as the expense is ordinary and necessary - meaning they're typical for your industry and required to conduct your business activities - they can be deducted on your tax return as business expenses.
Organization is key to running a successful business as a freelance virtual assistant, so software that supports this is considered a viable business expense.
This is deducted in Box 18 of your Schedule C.
Website and service fees
Many website costs are considered as marketing expenses and are tax deductible.
This includes:
- Costs associated with developing, designing and creating your website. Perhaps you use an online service such as WordPress and pay a monthly or annual subscription. This is tax-deductible.
- Website fees for hosting and maintenance. This can include domain and service fees.
- Ongoing website content creation.
This is deducted in Box 8 of your Schedule C.
Equipment and office supplies
Such as headsets, which are considered a necessary purchase to conduct your business activities.
Office supplies are also considered as a tax write-off, including binders, pens, and printer ink.
This is deducted in Box 18 of your Schedule C.
Books and courses
The virtual assistant profession is growing, and learning new industry trends, such as new software, is crucial. Books, and online and offline courses are considered as business purchases.
This is deducted in Box 27a of your Schedule C.
Advertising
A necessity for any business, advertising costs are also considered as business purchases and tax deductible.
Some advertising expenses include:
- Promotional items (such as stationary) featuring your logo
- The classics, including permanent signs and banner ads
- Business cards and brochures
- Logo design costs
- Networking activities, such as network events
- Online advertising, such as social media or Google AdWords
- Print advertisements
- Television and radio adverts
- Search engine optimization (SEO) services
- Social media influencers
This is deducted in Box 27a of your Schedule C.
Technology
The chances are you use a computer to work. Any technology required to conduct your business activities is considered a business expense and deductible. This includes printers, phones, and tablets.
This is deducted in Box 27a of your Schedule C.
Are Auto Expenses Deductible as a Virtual Assistant?
If you use only use your car for personal use, you can't claim auto expenses. This includes any interest and costs incurred from car loans and car insurance. However, if you use your car for business activities, such as meeting clients or attending events, you may be able to claim some of the expenses.
This can include:
Parking
Let's say you have a meeting or any other work-related trip, parking fees are considered tax deductible.
This is deducted in Box 27a of your Schedule C.
Tolls
Any toll fees incurred while driving to or from a work-related activity are also tax deductible.
This is deducted in Box 271a of your Schedule C.
Are Travel Expenses Deductible?
Any personal trips are non-deductible. But, business trips are. If you are traveling for work, here are a few expenses that can be deducted on your tax return:
Transportation
Trains, planes, and car rentals are all considered business-related expenses and can be deducted on your tax return.
This is deducted in Box 24a of your Schedule C.
Accommodation
If you are traveling for work, any lodging expenses such as Airbnb or hotel rooms are considered business purchases and are deductible.
This is deducted in Box 24a of your Schedule C.
Can I Claim Any Expenses if I Work From Home?
Available for both renters and homeowners, the home office tax deduction allows self-employed small business owners (sole proprietors, limited liability owners, or partners in a partnership) to claim expenses for the use of a home business space.
In order to take this deduction, you must be able to show you are self-employed and meet one of these criteria, per the IRS’ guidelines:
- Regularly and exclusively use the space as your principal place of business
- Regularly and exclusively use the space to meet clients, customers, or patients in relation to your business
- A separate structure (e.g., a garage used as an office on your property) not attached to your house used regularly and exclusively for your business
- A space used regularly for inventory or product samples (retail business)
- As a day-care service
For more information about the home office deduction, you can check out our guide for freelancers.
How to Save Money for Retirement
When you are employed and earning a regular wage, your employer often puts some of your wages aside for your retirement. As a freelance writer, you can too. This can't lower your self-employment tax, but it can reduce income taxes.
Let's go through some of the ways you can save for retirement with individual retirement arrangements (IRAs)
Traditional IRA
If you are a freelance writer just starting to save for retirement, a traditional IRA is probably the best option. With a contribution limit of up to $6500, or $7500 if you are 50 years or older, traditional IRAs allow tax-deductible contributions - since you are acting as an employee of your own business. This means, any withdrawals of your funds in retirement are tax-free. A 10% penalty applies for withdrawals before you reach the age 59½.
The Individual 401(k)
The Individual 401(k) is the ideal savings plan for a self-employed individual without staff. As most freelance writers do not employ staff, the Individual 401(k) may be the best option for you. Unlike other self-employed retirement savings plans, this plan allows you to contribute up to 100% of your income, maximizing your contributions.
Similar to the Traditional IRA, your contributions are tax-deferred until the age 59½. However, withdrawals of your funds after this age are taxed.
The contribution limit for the Individual 410(k) is up to $66,000 if you are under 50 years of age, and $75,000 if you are over 50.
The Roth IRA
If you are just starting out as a freelance writer, the Roth IRA is a great account. This is because, unlike the other IRAs mentioned above, the Roth IRA has an income limit for eligibility (less than $153,000).
With the Roth IRA, you can withdraw your funds at any time, for any reason, without a penalty. This can be helpful if you are just starting out as a freelance writer, and struggling with inconsistent income at any point.
The Roth IRA has a contribution limit of $6500 if you are under 50 years of age, and $7500 if you are over 50.
Filing Taxes - A Brief Overview
Now that we have covered the eligible tax write-offs and required tax payments, let's go through the process of filing your return and paying your taxes.
How do I fill out my Schedule C?
A Schedule C is used to break down all of your business expenses to determine how much of your business income is taxable.
Here's what you need to do:
- The first step is to define what type of business you are operating.
- Your earnings - this is your total earnings from the year
- Deduct any customer returns and costs of goods sold. This section doesn't apply to most writers, however, if you are an author who sells books directly, you can deduct the expenses occurred here.
- Now you list the rest of your business expenses. All expenses are separated by category.
The final step is to determine your taxable income. This is done by adding all of the numbers together.
How do I fill out my Schedule SE?
Now that you know your taxable income, you need to fill out Schedule SE which establishes how much self-employment tax you owe.
Here's what you need to do:
- Enter the total of your Schedule C
- Calculate your self-employment tax for the year following the form's instructions
- Submit the return!
How Indy Can Help
Here at Indy, we aim to make freelancing simple. There are several ways Indy can help virtual assistants with their taxes:
- Our online invoice tool can take the hassle out of invoicing. Our invoice generator produces a template in seconds, with options to send recurring invoices, and automatically attaching time sheets, writing and sending invoices has never been easier!
- Our contracts tool helps you manage your contracts with ease. Our Time Tracker helps you track your hours for every project, and our information-gathering tools help you manage your contracts and client forms - everything will be in one place ready for the tax season!
Indy can help you save time and manage your admin all on one platform . Sign-up now and try it for yourself!
Conclusion
Understanding the different eligible tax write-offs can significantly reduce your taxable income. From office supplies to bank fees, there are many tax write-offs freelance virtual assistants can claim on their tax return. Because virtual assistants are considered self-employed, you are responsible for 100% of your taxes. Organization and advance preparation can result in a smoother and stress-free tax season.
You can check out our guide on the home office deduction for some more money-saving tips and eligible tax deductions.
