Freelancing Overhead Costs: Your Guide to Keeping Track
Overheads? What overheads? Do you know how much your costs are and which ones you can claim?
No matter what type of freelancer you are, you incur overhead costs. Of course, if you rent office space, use a lot of equipment, or outsource tasks, you know you have some pretty hefty expenses. But even if you’re a newbie copywriter or developer armed with just a laptop and a coffee, you still have many costs you might not even think about.
What’s more, when it comes to tax season, you may be losing out by not claiming these expenses against your income! And nobody wants to be giving additional money to the tax man.
In this post, we’ll delve into the types of costs you need to keep track of, including plenty of examples. Let’s jump in!
Office overheads
If you own or rent an office from which you conduct your business, you no doubt already know that you can claim many of the expenses associated with that space. These include mortgage interest or rent, as well as things like utility and maintenance costs.
So what happens if you work from home? Well, you can most likely claim similar costs related to the space you work in. For example, in the US and Canada, we can claim a portion of many of our major household expenses.
It works fairly simply by adding up all the costs and calculating how much is attributed to the office area, based on square footage.
For example, if you have a 200 sq. ft. office in a 2,000 sq. ft. house, you can claim:
20/2000 x 100 = 10% of the household costs.
Here are some of overheads that are covered:
- Mortgage interest
- Property tax
- Utilities (water, gas, etc.)
- Home insurance
We can also claim internet and phone expenses, but these don’t have to be divided up quite the same way. If you use your phone and internet primarily for work, you might be able to claim a much larger portion of those bills.
If you don’t already keep track of your monthly household expenses, it’s worth starting now!
Material and equipment costs
When it comes to equipment, even at the most basic level, you likely own a laptop from which you conduct at least some of your freelance work. On the other hand, many freelancers, for example photographers, often spend huge amounts of cash each year on new equipment.
And it’s not just the big-ticket items like office furniture, computers, and cameras. All of the little things can add up. It’s worth keeping receipts for stationery, printing costs, postage expenses, and anything else related to your freelance business.
Of course, it’s not only material costs you need to record, especially in today’s environment. As we use an increasing number of online services to help us do our jobs, many freelancers end up paying for various intangible products. In particular, for many of us, software can be one of our major expenses.
These costs may include one-time purchases for software, upgrades to newer versions, or software-as-a-service (SaaS) billed monthly or annually. If you pay for a Photoshop subscription or to unlock premium features from a project management platform, these can all be considered overhead costs.
Platform and marketing costs
Do you have a website? Run Facebook Ads for your services? As you know, these all cost money.
When it comes to your own website, if you pay hosting and domain name fees, these should be recorded. Chances are you also pay for an email domain to boot. All of those seemingly small monthly payments add up and should be accounted for.
And what about advertising your services? If you boost posts on Facebook or use pay-per-click advertising through Google, these are all overhead costs.
Outsourcing expenses
Just as employers claim employee salaries as expenses, your outsourcing costs are important too. Perhaps you regularly hire other freelancers to complete tasks. Or you get someone to help when you’re in a pinch. Either way, these are all expenses that should be tracked.
Don’t forget to include one-off costs such as hiring a writer, graphic designer, or web developer when building your own website.
Other expenses
Depending on the nature of your business, you might have any number of additional expenses. If you meet with clients in person, then you’ll have transportation costs such as gas or transit fares. If you pay for food or drink during client meetings, these count as expenses too.
No matter what profession you’re in, you’re likely constantly learning about your trade. If you take courses, or purchase learning or research materials, these are all overhead costs related to your job. Perhaps you pay to subscribe to newsletters, join industry associations, or attend conferences. Again, these payments all add up.
No matter what your role entails, it’s virtually impossible not to incur overhead costs. While it might seem tedious to track them all, it can certainly pay off in the end. Not only will you have a firm grasp on how much you’re actually spending, you’ll also be ready to claim those expenses come tax season.
Do you have any other overheads to add that people may not think about? Let us know in the comments box below.
If you like this post, don’t forget to clap for it below and subscribe to get more such posts delivered straight to your inbox. :)
