As a freelancer, managing your taxes efficiently is crucial, and understanding what you can deduct can significantly reduce your taxable income.
Recently, a colleague asked me whether tax deductions can be claimed on tools like LinkedIn Pro and ChatGPT Pro for freelancers. It’s a great question, and after consulting tax experts Rehnu Vallabh, a senior tax consultant, and Monique Spray, a tax consultant at Tax Consulting South Africa, I have some valuable insights to share that could benefit anyone working for themselves.
According to Vallabh and Spray, freelancers, independent contractors, and sole proprietors must report their business income and expenses under the “local business” section of their personal tax returns. The good news is that you can deduct ordinary and necessary business expenses if they directly relate to your income generation. Subscriptions to services like LinkedIn Premium or ChatGPT Pro could potentially qualify as deductible business expenses, provided they are used for business purposes.
Can you deduct LinkedIn Pro?
Vallabh and Spray say the answer depends on how you use LinkedIn. If you're using LinkedIn Premium to actively grow your business, network with clients, search for work or advertise your services, then yes, your LinkedIn subscription can be deductible. Here's what qualifies as business use:
- Networking for business: connecting with potential clients, collaborators, or industry contacts.
- Job-related activities: searching for freelance work, clients, or contract opportunities.
- Advertising services: using LinkedIn’s premium features like job postings, InMail messages, or sponsored content to market your services.
- Professional development: accessing LinkedIn Learning to improve skills relevant to your business.
However, LinkedIn subscriptions are not deductible if you are using the platform mainly for personal networking or maintaining a non-business-related profile. If your primary use is casual or social, the subscription is considered a personal expense.
According to Vallabh and Spray, to claim LinkedIn as a business expense, make sure you can prove its role in income generation. Keep records such as:
- Client interactions or project details that demonstrate how LinkedIn supports your business.
- Invoices or contracts sourced through LinkedIn.
If you use LinkedIn for both personal and professional reasons, you can only claim the portion of the subscription that is business-related. This means you must apportion the expense, deducting only the percentage that directly contributes to your freelance or business activities.
Vallabh and Spray say in addition to tools like LinkedIn and ChatGPT, freelancers can deduct a variety of other business expenses that meet the criteria for tax deductibility. Common expenses that are often overlooked include:
- Accounting and bookkeeping fees: professional services to keep your finances in order.
- Internet and communication costs: necessary expenses for staying connected and running your business.
- Licenses and permits: fees for industry-specific certifications.
- Vehicle Costs: maintenance, repairs, and operating costs for business-related travel (be sure to keep a logbook).
- Office supplies: stationery, business cards, or office furniture.
- Transport and shipping: costs to deliver goods or services.
- Depreciation: wear and tear on assets like laptops or office equipment over R7,000.
- Uniforms and PPE: required business attire or safety gear.
- Bank fees and marketing costs: charges related to your business bank account or advertising.
Some costs, like phone bills, internet, and car usage, may be used for both personal and business purposes. While you can deduct the business portion, claiming the full amount could lead to issues with Sars. Here's how to calculate your business-use percentage:
- Identify business usage: determine how much of the expense is for business versus personal use.
- Keep detailed records: for vehicle expenses, maintain a logbook; for phone or internet usage, keep track of calls, data, or time spent on business activities.
- For instance, if you’re claiming car expenses, you need to maintain a detailed log of business versus personal mileage to justify the deduction.
When filing your tax return, Sars may request supporting documents to verify your deductions. Here’s how to ensure a smooth process:
- Keep scanned copies of invoices and receipts for all claimed expenses.
- Provide detailed calculations for apportioned expenses, don’t just rely on rough estimates.
- Keep well-organised records, as Sars typically won’t accept vague summaries or schedules.
By following these steps and ensuring your records are accurate, you can maximise your deductions while staying compliant with South African tax laws.
* Maleke is the Personal Finance editor.
PERSONAL FINANCE