How to make the most of your tax position working online

How to make the most of your tax position working online

Many online entrepreneurs are unaware of available tax deductions and are missing out big time.

While FYF does not provide tax advice, this article will give you some idea of the kind of tax deductions you can expect as a self-employed online entrepreneur.

Always check your tax position with a suitably qualified local tax practitioner or accountant.

This is the type of information you seldom find elsewhere but is useful to know right from the get-go. While you may not reach a taxable income immediately (unless you also earn a salary of course), your income can ramp up very quickly once you become established.

Remember: it’s a good idea to keep all invoices and receipts from day 1, you’ll need them later.

The following article was provided by an FYF community member who is also a qualified Chartered Accountant.


Tax deductions for online entrepreneurs

Most entrepreneurs trade as self-employed or sole traders for tax purposes, and thus their taxable income would normally comprise:

Gross Income – Business Expenses = TAXABLE INCOME (i.e. profit before tax).

It’s important to understand your tax situation depends on where you live and work, and your local tax regulations. Thus, the following should be regarded as a general overview of some of the deductions available worldwide.

Your next step should be to consult a local accountant or qualified tax professional to review your personal situation and get advice on the best way forward in your local tax jurisdiction.


What is a Business Expense?

As a general rule, the tax definition of a business expense is a business cost that has been incurred solely and exclusively in your business to earn your income, excluding capital expenditure (although depreciation of such assets is normally allowed as an expense).

However, as you’ll discover below, some expenses have to be apportioned between business and personal use (e.g. smartphone/Internet).


Potential Business Expenses

Business Accommodation:

(a) Dedicated business premises

If you rent specific accommodation for your business, the following can be claimed:

  • Rent
  • Rates
  • Water
  • Electricity
  • Cleaning
  • Security
  • General Maintenance
  • Insurance

(b) Working from home

Usually based on space used exclusively for your office i.e. say 15 sq. meters of a total of 150 sq. meters = 10% of total running costs. This means you could likely claim 10% of:

  • Water
  • Electricity
  • Cleaning
  • Security
  • General Maintenance
  • Insurance
  • Mortgage interest (Not Mortgage Repayments)

 Office Supplies

Printing and Stationery

Hardware and Software

  • Personal laptop computer
  • Smartphone
  • Tablet

Apportion between business and personal use and claim allowances on the purchase of hardware over locally designated tax periods.

Medical Aid/Healthcare Insurance Contributions

Can be claimed for.

Insurance Premiums

  • Public liability
  • Loss of earnings
  • Office contents etc.

Travel Expenses

If you have to travel to a client, traveling, accommodation and subsistence are generally allowed, but rarely entertaining.

Motor Expenses

The rules regarding the deduction of the costs of running a motor car vary considerably worldwide.

However, as a general rule, assume it will be necessary to keep a logbook detailing your business and personal mileage and the total running costs e.g. petrol, insurance, repairs. Costs can be apportioned appropriately.

Advertising and Marketing

Business cards, brochures, sponsorships and press advertising

Internet, Cellphone and Phone Bills

Apportion between business and personal use.

Accounting, Legal and Professional Fees

Claim for all expenditure on professional fees.

Website Costs

The cost of a business website including domain fees, design, building costs, and maintenance.

Bank Charges & Interest on Business Bank Accounts

To avoid hassles with your local tax authority, it’s always advisable to open a separate business bank account for your business activities, especially in respect of your fees and direct business expenses.

Cost of Employees/Contract Labor

If you employ any staff or hire any other independent contractors or freelancers, all related costs are included in your business expenses.


End Words

I hope you found this article on tax deductions for online entrepreneurs informative, and it helps you claim what is rightfully yours!

Remember, start keeping good records of your income and expenses from day 1 – you’ll be glad you did 🙂

12 thoughts on “How to make the most of your tax position working online”

  1. Well I have been really thinking of how am going to calculate my taxes now that I intend to earn part of my income online as a freelancer. Your article has really explained how to account for my costs so well. Working from home can be tricky since you don’t know how to differentiate your business expenses from personal expenses but from your explanation makes so much sense to portion a certain percentage and not all your household expenses. Now I have a clue of how I will do my taxes next year, thank you for this.

    • Glad you found the post helpful and good luck with your freelancing career. Don’t forget to check out the free advice I give on freelancing on the site 🙂

  2. Les Blythe, Hi! You instill confidence in a person who is engaged in online business. I am glad to have the opportunity to study your topic about the tax position of a freelancer. 

    Because it will affect me very soon.

    I intend to keep all the content of your site at hand. I will always recommend it to friends because it provides the latest information. 

    Very grateful. Mark

  3. wow wow a fantastic article and I learned a lot from this for the USA tax deductions system. Really interesting to know you can claim a proportion of your household outlay depending on the size of your home office. I am definately bookmarking your very informative website for future use.

    • Hey Dianne, I’m glad you found the post useful, make sure to claim everything that applies to your personal situation…

  4. Your article is very interesting. I am currently not earning enough yet as a freelancer but its good to know which way I should go about it when I do earn enough (which I plan on getting to very soon!). I didn’t know there was a difference in tax laws between a self employed person and a freelancer. Is that the same in every country? I’m based in the UK.

    • I’m actually from the UK and as far as I know, a self employed person would also cover a freelancer. With that said, it’s always advisable to take professional advice if in doubt. The key thing is to make sure you write off every expense you possibly can against tax as it’s effectively less money you need to earn!

  5. One of the first things anyone who’s self employed, a freelancer, or works at home needs to know if their tax deductions. If you don’t start from the first day you could be giving up deductions because you didn’t keep track of them. Standard deductions are usually taken anyway but you never know how your business could take off and put you in a different tax position than you expected in the beginning. 

    • Hey Anna,

      Yes, I agree 100% that you need to keep on top of your tax deductions. If you don’t claim back $100 you’re due, that’s an extra $100 you have to earn!

      Thanks for your input.

  6. Hey Les,

    Great advice and details on how to maximize the tax code for the free-lance lifestyle.  It can be tough to itemize but can really make a difference.

    The key is to really nail down a systematic record keeping strategy and to get in the habit of logging and documenting EVERYTHINIG!  You never know how it can tie into a deduction down the road.

    Thanks for the research and thought-provoking ideas on how to get back some extra bucks at tax time!

    Keep up the super job here!

    • Thanks for your input Tim.

      Yes, your 100% spot on – good record keeping is real important and an excellent habit to develop.

      Boring but necessary!

      All the best.

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