While the tax season for tax year 2023 is drawing to a close, it is the perfect time to start thinking about tax year 2024. Most online content on the reduction of tax liability is skewed toward employees. However, given the increasing number of Americans who are gig workers or freelancers and the continued importance of the self-employed to the economy, it is essential to consider how those clients can also reduce their tax liability.
Thankfully, gig workers and the self-employed can use many legal strategies—including tax deductions and credits—to reduce their tax liability and increase their disposable income for the 2024 tax year. Here are seven important ones I’m talking to my clients about.
Key Takeaways
- Freelancers, gig workers, and self-employed business people are entitled to use legal strategies to reduce their tax liability
- Where freelancers do their business has a bearing on certain deductions and credits such as the home office deduction
- Some deductions are being phased out, such as the qualified business income deduction
Home Office Deduction
The rent and utility bills that pay for a space in a client’s home that they use regularly and, more importantly, exclusively for work (gig worker) or business (self-employed are tax deductible) is tax deductible.
Note that home office deduction is not applicable to employees who work from home. Rather, it is limited to the self-employed, freelancers, gig workers, and independent contractors. The amount they can deduct will depend on the square footage of the space used regularly and exclusively for work as a percentage of the total square footage of a home.
Qualified Business Income Deduction
Self-employed individuals and small business owners can also benefit from the qualified business income deduction. This is a 20% deduction on their taxable business income.
To qualify in tax year 2024, the total income (business income plus non-business income) must be under $191,950 for single filers and $383,900 for joint filers.
If their income is above these limits, they could still qualify if they pass certain tests. Though it is not impossible to pass these tests, the whole thing can become more complicated.
Dec. 31, 2025
When the Qualified Business Income Deduction will be phased out.
Renting Out Home for Business Meetings
According to the 14-day rule (also known as the Augusta rule), the income earned from renting a person’s home for 14 days in a year will not be taxable. This rule applies to all homeowners as long as the home is not the primary place for business.
Self-employed individuals without a home office can benefit from this rule. First, they can rent out their home as a meeting place for their business and deduct the related expenses when computing taxes for the business. Secondly, the personal income they receive will not be subject to taxation.
Deducting Half of Self-Employment Taxes
Self-employment taxes are the Medicare and Social Security taxes that the self-employed pay. They add up to 15.3% of income (there is an additional 0.9% Medicare tax if income exceeds a certain threshold).
The IRS will allow deductions of 50% of self-employment taxes from their income taxes. Moreover, they don’t need to itemize deductions to qualify.
Bonus or Accelerated Depreciation
In 2022, the government introduced the concept of bonus or accelerated depreciation, which allowed businesses to deduct a significant part of the purchase price of qualified purchases (assets) in the year they acquired them (instead of deducting them over the asset’s useful life).
For 2022, 100% of the purchase price was deductible. This will decrease by 20% annually until the whole concept is phased out at the end of 2026. This means that for the 2024 tax year, self-employed people can deduct 60% of the purchase price of qualified assets.
Writing Off Business Travel Expenses During Vacation
If self-employed people combine a vacation and a business trip, they can deduct part of the vacation expenses spent exclusively for business purposes. However, it is important to ensure that only expenses on exclusively business purposes are included. Claiming deductions for anything else can result in legal problems.
Charitable Donations
Self-employed individuals can also donate cash, goods, appreciated stocks, and required minimum distributions (RMDs). All of these donations are tax exempt as long as they are made to qualified charities.
The Bottom Line
As tax season for tax year 2023, I’m talking to my independent contractor clients about tax year 2024. Minimizing tax liability is for the employed, but not just those who work with medium to large companies. With these seven strategies, self-employed and gig workers can also save money in taxes.