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Buying a home is a major life moment. It’s exciting, but also potentially stressful and confusing. Luckily, there are real estate agents to guide you through the process.

Finding a real estate agent who is well connected, hard working, and trustworthy can save consumers time and offer some much-needed peace of mind.

Benefits of Hiring a Good Real Estate Agent

A skilled real estate agent can help a buyer locate their dream home, navigate negotiations, and wrap up all that tedious paperwork. An agent with a strong professional network and familiarity with the housing inventory where you’re hoping to buy may even get early word of so-called “whisper listings” — properties that are about to come on the market.

First-time home buyers may find an agent’s guidance to be especially helpful. But even seasoned buyers can benefit from expert advice. (If you do feel confident you have the skills to go it alone, buying a house without a real estate agent is possible.)

How to Find a Good Real Estate Agent

In many housing markets, a dizzying number of professionals are standing by to help with your home purchase. Take these steps to choose smartly.

Learn the Terms

Before launching a search for the perfect real estate agent, it can be helpful to brush up on the job titles you may encounter.

Most commonly, consumers will come across real estate agents, Realtors®, and brokers, all of whom can act as agents, but who can have varying levels of experience, education, and certifications.

•   Real estate agent: Holds a license to practice real estate.

•   Realtor: To have this designation, an agent must be a member of the National Association of Realtors, which is a trade association.

•   Broker: A real estate agent must complete a certain amount of working hours, have additional education, and may have demonstrated leadership abilities among other agents in order to qualify as a broker.

Keep It Personal

A little networking can go a long way when looking for a good real estate agent.

Asking trusted friends, family members, or neighbors which real estate agent they worked with is a great place to start. Additional avenues that can lead to finding a good real estate agent may include:

•   Checking out local magazines and area “best of” lists featuring real estate agents.

•   Reviewing local real estate association websites.

•   Considering agents who are listed often on for-sale signs in the area.

How to Choose a Real Estate Agent

Once you’ve made a list of possible agents, you’ll want to do your homework.

Leave No Stone Unturned

Just as “location, location, location” is an important factor in buying property, research, research, and more research will help in the search to find a good real estate agent. This is also the time to think seriously about your finances and to start the process of lining up a home mortgage loan, as your real estate agent will ask about your price range.

Recommended: How to Get a Mortgage in 2023

Looking up reviews on websites like Zillow or Realtor.com can be a good place to find a good real estate agent.
When reading reviews or considering references, it can be helpful to seek answers to the following questions:

•   Does the agent have good communication skills?

•   Is the agent easy to touch base with and have ample availability?

•   Did they show interest in the process even after a deal was under contract?

•   Are they known to regularly have disagreements with other agents?

If you find a real estate agent online or as a result of the agent’s marketing efforts, ask for references before making a decision.

Following a Hiring Process

Narrow the field to a handful of possible agents, then interview them before making a decision.

This process can feel similar to hiring an employee. The interview can give you an idea of what it will be like to work with an agent. Here are some sample questions to ask when interviewing agents:

•   How long have you worked as a real estate agent? Experience is key, especially for first-time buyers or sellers who need extra guidance in a hot market.

•   How many clients do you usually have at once? Their answer will help determine how much time they have to devote to each client and how accessible they will be.

•   Do you work with a team? For busier agents, having team members who can provide assistance can be helpful.

•   What areas do you cover? Finding an agent who is familiar with the area you’re looking in can give you a leg up in your search.

•   How do you prefer to communicate? Make sure your communication styles mesh well together, whether that be over text, phone, or email.

(Selling a home? The interview questions are different. You’d want to ask how the agent would market the home, what fees might be included, and how they would price the home based on recent sales in the area.)

Recommended: 15 Questions to Ask When Interviewing Realtors

When It’s Time to Buy

Some real estate agents may request that home buyers sign a contract known as an agency agreement. Before making any real estate working relationship official, take a close look at the contract to ensure there are no unpleasant surprises down the road.

The agreement may obligate you to only work with the agent for a set period of time. These contracts are not always required, but they provide the real estate agent with more assurance that they will be paid for their services.

Those selling a home also sign a contract, known as a listing agent contract, with the real estate agent who is listing their home. Typically, these agreements include the commission amount, listing duration, cancellation clause, responsibilities, disputes, ownership, expiration date, and details regarding dual-agency restrictions in the states where it is allowed.

Good Real Estate Agents’ Tips

Once you find a real estate agent to buy a house, a good agent will accompany you on home tours, advise you when you are ready to make an offer, and recommend other professionals such as a home inspector.

The homebuying process can be complicated and a good real estate agent should hold your hand every step of the way. Your agent will submit your offer on your behalf and provide you with a list of the documents you need to buy a house, including mortgage documents, that you will need for the closing.

The Takeaway

Finding a good real estate agent can be key to closing the best deal as a buyer. A thorough research and interview process can help you land an agent you feel, well, at home with — and who will work hard for you.

Getting preapproved for your mortgage loan is another important step in the buying process. SoFi strives to make the process simpler with a quick online digital application and access to representatives ready to help. SoFi Mortgage Loans offer competitive rates, and require as little as 3% down.*

Review potential rates with SoFi in a matter of minutes.

FAQ

What buyers want most from real estate agents?

Buyers most want an agent who will help them find the right home, so a well-connected agent familiar with the community and its housing inventory is a top priority.

What is an offer to purchase a home called?

An offer to purchase contract, also called a real estate purchase agreement, contains the address and description of the property, as well as the purchase price, down payment information, other deal terms, and an expiration date. It helps ensure that the buyer and seller are in agreement about the deal.

How do I get the best out of my real estate agent?

Knowing what you are looking for in a home, knowing your budget, and communicating openly about what you like and dislike can help ensure best results. Keep in mind that your real estate agent works on commission: Be organized, only visit properties you are truly interested in, and come to appointments on time.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

**SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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There are millions of credit card accounts in the United States alone, and it’s estimated that 90% of adults in the U.S. have at least one credit card. Yet, many people don’t have a firm grasp on the basics of what a credit card is and how credit cards work.

If you have a credit card account, or plan on ever using one, it’s important to understand the fundamentals of credit cards. This ranges from what a credit card is to how credit card interest works to how credit cards relate to credit scores.

What Is a Credit Card?

A credit card is a type of payment card that is used to access a revolving line of credit.

Credit cards differ from other types of loans in that they offer a physical payment card that is used to make purchases. Traditionally, credit cards are made of plastic, but an increasing number of credit card issuers now offer metal cards, usually for their premium accounts that offer travel rewards.

But a credit card account is much more than a plastic or metal payment card. A credit card account is a powerful financial tool that can serve many purposes. Here’s a closer look:

•   It can be a secure and convenient method of payment anywhere that accepts credit card payments. It also can be used to borrow money in a cash advance or to complete a balance transfer.

•   Credit cards can offer valuable rewards, such as cash back and travel rewards like points or miles. Cardholder benefits can also include purchase protection and travel insurance policies.

•   If used responsibly, a credit card can help you to build your credit score and history, which can open up new borrowing opportunities.

•   Of course, credit cards can also damage your credit when used irresponsibly. If you rack up debt on your credit card, it can be hard to get it paid off and get back in the clear (here, for instance, is what happens to credit card debt when you die).

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

How Do Credit Cards Work?

Credit cards offer a line of credit that you can use for a variety of purposes, including making purchases, completing balance transfers, and taking out cash advances. You can borrow up to your credit limit, and you’ll owe at least the minimum payment each month.

You can apply for a credit card from any one of hundreds of credit card issuers in the U.S. Card issuers include national, regional, and local banks, as well as credit unions of all sizes. Card issuers will approve an application based on the credit history and credit score of the applicant, among other factors.

There are credit cards designed for people with nearly every credit profile, from those who have excellent credit to those with no credit history or serious credit problems. As with any loan, those with the highest credit score will receive the most competitive terms and benefits.

Once approved, you’ll likely receive a credit limit that represents the most you can borrow using the card. Whether your limit is above or below average credit card limit depends on a variety of factors, including your payment history and income.

The credit card is then mailed to the account holder and must be activated before use. You can activate a credit card online or over the phone. So long as your account remains in good standing, it will be valid until the credit card expiration date.

Once activated, the card can be used to make purchases from any one of the millions of merchants that accept credit cards. Each card is part of a payment network, with the most popular payment networks being Visa, Mastercard, American Express, and Discover. When you make a payment, the payment network authenticates the transaction using your card’s account number and other security features, such as the CVV number on a credit card.

Every month, you’ll receive a statement from the card issuer at the end of each billing cycle. The statement will show the charges and credits that have been made to your account, along with any fees and interest changes being assessed.

Your credit card statement will also show your balance, minimum payment due, and payment due date. It’s your choice whether to pay your minimum balance, your entire statement balance, or any amount in between. Keep in mind that you will owe interest on any balance that’s not paid back.

If you don’t make a payment of at least the minimum balance on or before the due date, then you’ll usually incur a late fee. And if you pay more than your balance, you’ll have a negative balance on your credit card.

Recommended: Tips for Using a Credit Card Responsibly

Credit Card Fees

There are a number of potential fees that credit card holders may run into. For example, some credit cards charge an annual fee, and there are other fees that some card issuers can impose, such as foreign transaction fees, balance transfer fees, and cash advance fees. Cardholders may also incur a late fee if they don’t pay at least the minimum due by their statement due date.

Often, however, you can take steps to curb credit card fees, such as not taking out a cash advance or making your payments on-time. For a charge like an annual fee, cardholders will need to assess whether a card’s benefits outweigh that cost.

3 Common Types of Credit Cards

There are a number of different kinds of credit cards out there to choose from. Here’s a look at some of the more popular types.

Rewards Credit Cards

As the name suggests, rewards credit cards offer rewards for spending in the form of miles, cash back, or points — a rewards guide for credit cards can give you the full rundown of options. Cardholders may earn a flat amount of cash back across all purchases, or they may earn varying amounts in different categories like gas or groceries.

The downside of these perks is that rewards credit cards tend to have higher annual percentage rates (APRs), so you’ll want to make sure to pay off your full balance each month.

Balance Transfer Credit Cards

Balance transfer cards allow you to move over your existing debt to the card. Ideally, this new card will have a lower interest rate, and often they’ll offer a lower promotional rate that can be as low as 0% APR. However, keep in mind that this promo rate only lasts for a certain period of time — after that, the card’s standard APR will kick back in.

Secured Credit Cards

If you’re new to credit or trying to rebuild, a secured credit card can be a good option. Generally, when we talk about credit cards, the default is an unsecured credit card, meaning no collateral is involved. With a secured credit card, you’ll need to make a deposit. This amount will generally serve as the card’s credit limit.

This deposit gives the credit card issuer something to fall back on if the cardholder fails to pay the amount they owe. But if you’re responsible and get upgraded to a secured credit card, or if you simply close your account in good standing, you’ll get the deposit back.

How Does Credit Card Interest Work?

The charges you make to your credit card are a loan, and just like a car loan or a home loan, you can expect to pay interest on your outstanding credit card balance.

That being said, nearly all credit cards offer an interest-free grace period. This is the time between the end of your billing period and the credit card payment due date, typically 21 or 25 days after the statement closing date. If you pay your entire statement balance before the payment due date, then the credit card company or issuer will waive your interest charges for that billing period.

If you choose not to pay your entire statement balance in full, then you’ll be charged interest based on your account’s average daily balance. The amount of interest you’re charged depends on your APR, or annual percentage rate. The card issuer will divide this number by 365 (the number of days in the year) to come to a daily percentage rate that’s then applied to your account each day.

As an example, if you had an APR of 15.99%, your daily interest rate that the card issuer would apply to your account each day would be around 0.04%.

As an example, if you had an APR of 24.99%, your daily interest rate that the card issuer would apply to your account each day would be around 0.07%.

Recommended: Average Credit Card Interest Rates

Credit Cards vs Debit Cards

Although they look almost identical, much differs between debit cards vs. credit cards. Really, the only thing that debit cards and credit cards truly have in common is that they’re both payment cards. They both belong to a payment network, and you can use them to make purchases.

With a debit card, however, you can only spend the funds you’ve already deposited in the checking account associated with the card. Any spending done using your debit card is drawn directly from the linked account. Because debit cards aren’t a loan, your use of a debit card won’t have any effect on your credit, positive or negative.

But since it isn’t a loan, you also won’t be charged interest with a debit card, nor will you need to make a minimum monthly payment. You will, however, need to make sure you have sufficient funds in your linked account before using your debit card.

Another key difference between credit cards vs. debit cards is that credit card users are protected by the Fair Credit Billing Act of 1974. This offers robust protections to prevent cardholders from being held responsible for fraud or billing errors. Debit card transactions are subject to less powerful government protections.

Lastly, debit cards rarely offer rewards for spending. They also don’t usually feature any of the travel insurance or purchase protection policies often found on credit cards. You likely won’t be on the hook for an annual fee with a debit card, which is a fee that some credit card issuers do charge, though you could face overdraft fees if you spend more than what’s in your account.

To recap, here’s an overview of the differences between credit cards and debit cards:

Pros and Cons of Using Credit Cards

Beyond knowing what a credit card is, it’s important to familiarize yourself with the pros and cons of credit cards. That way, you can better determine if using one is right for your financial situation.

To start, notable upsides of using credit cards include:

•   Easy and convenient to use

•   Robust consumer protections

•   Possible access to rewards and other benefits

•   Ability to avoid interest by paying off monthly balance in full

•   Potential to build credit through responsible usage

However, also keep these drawbacks of using credit cards in mind:

•   Higher interest rates than other types of debt

•   Temptation to overspend

•   Easy to rack up debt

•   Various fees may apply

•   Possible to harm credit through irresponsible usage

How to Compare Credit Cards

Since there are hundreds of credit card issuers, and each issuer can offer numerous individual credit card products, it can be a challenge to compare credit cards and choose the one that’s right for your needs. But just like purchasing a car or a pair of shoes, you can quickly narrow down your choices by excluding the options that you aren’t eligible for or that clearly aren’t right for you.

Start by considering your credit history and score, and focus only on the cards that seem like they align with your credit profile. You can then narrow it down to cards that have the features and benefits you value the most. This can include having a low interest rate, offering rewards, or providing valuable cardholder benefits. You may also value a card that has low fees or that’s offered by a bank or credit union that you already have a relationship with.

Once you’ve narrowed down your options to a few cards, compare their interest rates and fees, as well as their rewards and benefits. You can find credit card reviews online in addition to user feedback that can help you make your final decision.

Important Credit Card Terms

One of the challenges to understanding how credit cards and credit card payments work is understanding all of the jargon. Here’s a small glossary of important credit card terms to help you to get started:

•   Annual fee: Some credit cards charge an annual fee that users must pay to have an account. However, there are many credit cards that don’t have an annual fee, though these cards typically offer fewer rewards and benefits than those that do.

•   APR: This stands for annual percentage rate. The APR on a credit card measures its interest rate and fees calculated on an annualized basis. A lower rate is better for credit card users than a higher rate.

•   Balance transfer: Most credit cards offer the option to transfer a balance from another credit card. The card issuer pays off the existing balance and creates a new balance on your account, nearly always imposing a balance transfer fee.

•   Card issuer: This is the bank or credit union that issues the card to the cardholder. The card issuer the company that issues statements and that you make payments to.

•   Cash advance: When you use your credit card to receive cash from an ATM, it’s considered a cash advance. Credit card cash advances are usually subject to a much higher interest rate and additional fees.

•   Chargeback: When you’ve been billed for goods or services you never received or that weren’t delivered as described, you have the right to dispute a credit card charge, which is called a credit card chargeback. When you do so, you’ll receive a temporary credit that will become permanent if the card issuer decides the dispute in your favor.

•   Due date: This is the date you must make at least the credit card minimum payment. By law, the due date must be on the same day of the month, every month. Most credit cards have a due date that’s 21 or 25 days after the statement closing date.

•   Payment network: Every credit card participates in a payment network that facilitates each transaction between the merchant and the card issuer. The most common payment networks are Visa, Mastercard, American Express, and Discover. Some store charge cards don’t belong to a payment network, so they can only be used to make purchases from that store.

•   Penalty interest rate: This is a separate, higher interest that can apply to a credit card account when the account holder fails to make their minimum payment on time.

•   Statement closing date: This is the last day of a credit card account’s monthly billing cycle. At the end of this day, the statement is generated either on paper or electronically, or both. This is the day on which all the purchases, payments, fees, and interest are calculated.

Credit Cards and Credit Scores

There’s a lot of interplay between credit cards and your credit score.

For starters, when you apply for a new credit card, that will affect your score. This is because the application results in a hard inquiry to your credit file. This will temporarily ding your score by a few or several points, and it will remain on your credit report for two years, though the effects on your credit don’t last as long.

Further, how you use your credit card can impact your credit score — either positively or negatively. Having a credit card could increase your credit mix, for instance, which can have a positive impact. Or, closing a longstanding credit card account may shorten the age of your accounts, resulting in a negative impact to your score.

Making timely payments is key to maintaining a healthy credit score, as is keeping a low credit utilization rate (the amount of your overall available credit you’re currently using). If you max out your credit card or miss payments, that won’t bode well for your credit score. Conversely, staying on top of payments can be a great step toward building your credit.

The Takeaway

Credit cards work by giving the account holder access to a line of credit. You can borrow against it up to your credit limit, whether for purchases and cash advances. You’ll then need to pay back the amount you borrowed, plus interest, which is typically considered to be a high rate vs. other forms of credit. For this reason, it’s important to spend responsibly with a credit card.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How does a person shop for a credit card?

To shop for a credit card, start by looking at your credit score to determine what cards you may be able to qualify for. Then, decide what kind of card is best for your needs, such as a card that has a low interest rate, one that will allow you to build credit, or a card that offers rewards. Finally, compare similar products from competing card issuers to assess which is the most competitive offer available to you.

Can I use my credit card abroad?

Yes, most credit card payment networks are available in most countries. As long as you visit a merchant that accepts cards from the same payment network that your card belongs to, then you’ll be able to make a purchase.

How do you use a credit card as a beginner?

If you’re new to credit and working to build your score, you’ll want to make sure you’re as responsible with your card as possible. Pay your bill on time, and aim to pay in full if you can to avoid interest charges. Use very little of your credit limit — ideally no more than 30%. And make sure to regularly review your credit card statements and your credit report. But don’t let any of that scare you away from using your card either — it’s important to regularly use your card for small purchases to get your credit profile built up.

How do credit cards work in simple terms?

Credit cards offer access to a line of credit. You can borrow against that, up to your credit limit, for a variety of purposes, including purchases and cash advances. You’ll then need to pay back the amount you borrowed.

How do payments on a credit card work?

At the end of each billing cycle, you’ll receive a credit card statement letting you know your credit card balance, minimum payment due, and the statement due date. You’ll then need to make at least the minimum payment by the statement due date to avoid late fees and other consequences. If you pay off your full balance, however, you’ll avoid incurring interest charges. Otherwise, interest will start to accrue on the balance you carry over.

Photo credit: iStock/Katya_Havok

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Are you a freelancer? If so, you are in good company. Last year, almost 40% of the U.S. population did freelance work.

As the gig economy surges and more people participate, it’s important to be aware of the taxes you owe and the deductions you can take. Those deductions can help lower the amount of taxes you owe and help you keep more of your hard-earned money, so you’ll want to claim what’s due to you.

Taxes for those who are self-employed can get complex, and tax laws can change frequently. It’s therefore wise to do your research or hire a tax professional who focuses on freelance taxes.

But whether you choose to work with a tax pro, or go it on your own, it can be very helpful to know about the self-employed tax deductions that are usually allowed. To help you get up to speed, read on for 25 tax deductions that many freelancers can take.

Self-Employed Tax Deductions You Won’t Want to Miss

When considering whether an expense is deductible or not, you may want this rule of thumb in mind: The Internal Revenue Service (IRS) guideline for freelancer tax deductions is that expenses must be ordinary and necessary.

If you purchase an item or incur an expense even if you weren’t running your freelance business, it likely would not qualify for a deduction.

Below are some key deductions you may be able to qualify for. Knowing and noting them can help you with financial planning for freelancers.

1. Home Office

Are you earning money from home? If so, one of the most common deductions for freelancers is claiming a home office on your taxes. To take this deduction, the designated space must be used regularly and exclusively for business operations, and must be the principal location where business is conducted.

You can take this deduction whether your own or rent. You can use the simplified method, which has a rate of $5 per square foot for business use of the home, with a maximum deduction of $1,500 (or 300 square feet), according to the IRS .

Or, you can use the regular method, which divides expenses of operating the home (including mortgage/rent, real estate taxes, utilities, home insurance) between personal and business use.

Calculating Home Office Tax Deductions

To maximize your deduction for a home office you may want to calculate both the simplified and the regular techniques to see which is higher.

•   As mentioned above, the simplified method involves calculating your home office’s square footage (up to a cap of 300 square feet), and multiplying that by five.

•   For the regular method, you would use IRS Form 8829 to figure out the number. While this is a more involved calculation, it might yield a higher number.

2. Office Supplies

Looking for more tax deductions for freelancers? The materials you purchase to work in your home office, such as paper, pens, pencils, pads, printer ink, staples, paper clips, etc, can typically be deducted at full cost as long as the items are used for business.

3. Hardware and Equipment

If you require specific hardware, such as a laptop, personal computer, tablet, or other types of equipment to run your business, these purchases may count as deductions.

Or maybe you earn money from a side hustle like photography or jewelry making, which requires specialized equipment.

You may want to talk to your accountant about the best way to deduct these expenses, as some bigger purchases that will be used beyond one year may need to be depreciated over a set number of years, rather than deducted in full.

4. Web Hosting and Online Tools

If you have a website and pay fees for web hosting, these expenses can likely be deducted from your taxes. If you use other online tools for your business (such as Dropbox or Zoom), fees you pay for these services can also usually be deducted.

5. Phone And Internet Service

If you use the internet, a landline phone, or a cell phone for business at least some of the time, these services may qualify for a deduction.

You may want to keep in mind, however, that you can generally only deduct a portion based on your business usage.

6. Start-Up Costs

Here’s another freelance tax deduction: You may be able to deduct up to $5,000 of initial purchases and investments made to get your business up and running in its first year. Purchases that exceed that amount can often be deducted over time.

7. Employee Salaries

The cost of paying employees to work within a business can usually be deducted. These costs generally include both wages and benefits.

8. Self-Employment Tax

Are you a 1099 worker? Self-employment taxes cover freelancer contributions toward Social Security and Medicare. You can generally deduct the employer-equivalent portion of your self-employment tax, which is half the total self-employment tax.

9. Your Car

The entire cost of ownership and maintenance of any vehicle used strictly for business purposes can typically be deducted from business income (subject to some limits). The IRS mileage rate for tax year 2024 is 67 cents per mile driven for business use.

Cars driven for both business and personal use can also be deducted, but only for costs incurred while conducting business. It’s wise to set up a system to keep track of when you are driving for personal vs. professional purposes.

10. Unpaid Invoices

Also known as bad debt, unpaid invoices (meaning your business is owed money that it has no hope of reclaiming) may be deductible.

However, in order for the deduction to be allowed, it must be clear to both parties that the transaction was not a gift.

11. Business License

Depending on the industry, certain state and federal licenses may be required for a business to operate. However, there may be an amortization schedule to be aware of, meaning you would deduct percentages of the cost over time.

The fees paid annually to state or local governments for obtaining those licenses can generally be deducted.

It’s wise to look further into the tax code to be sure you understand how to properly take these deductions.

12. Qualified Business Income

This is a newer self-employment deduction. The qualified business income deduction (QBI) is a tax deduction that allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income on their taxes. There are income limits to qualify, however, and this benefit is currently scheduled to be phased out after 2025.

13. Product Supplies and Storage Units

For freelancers who sell products, the supplies purchased in order to make those products can usually be a freelance tax deduction.

The costs of keeping business supplies and assets in a storage unit can generally also be deducted, since storage is an expense factored into the overall cost of the goods sold.

14. Business Loan Interest

If you’ve taken out a loan to help fund your business, you may be able to deduct the interest you incur from it as a business expense.

For this to be deductible, however, a freelancer must be legally liable for that debt. In addition, both the freelancer and the lender must intend that the debt be repaid and have a true debtor-creditor relationship.

15. Meals

Sorry, buying takeout and eating it at your desk isn’t tax-deductible. But if you are traveling for business, at a conference, or dining with a client, then you can deduct 50% of the cost if you have the receipt. If you don’t have the receipt, you can take off 50% of the standard meal allowance.

16. Transaction Fees

If part of your business involves processing credit card orders, you may have an additional freelancer deduction. The processing costs a freelancer may incur by accepting credit cards payments is usually deductible as a qualified business expense.

17. Attorney & Accountant Fees

The fees charged by attorneys and accountants that are related to operating your business are typically considered tax-deductible business expenses.

That includes tax preparation fees, as well as any additional tax resolution expenses that pertain to your business.

18. Education Costs

Freelancer deductions can include the cost of education that helps you maintain or improve skills needed in your present work. This tax deduction also typically includes costs for books, supplies and even transportation.

19. Industry Events

Fees for attending conferences or conventions that are business related can typically be deducted.

Not only are the admission or registration fees often deductible, but all reasonable travel expenses accrued in order to attend the event may be deductible as well.

20. Promotional Materials

Tools used for marketing, advertising, and the general promotion of a business are considered deductible expenses. That includes advertising your product or service on social media or elsewhere.

Any expenses incurred in order to influence legislation (such as lobbying), however, are not deductible.

21. Business Membership Fees

While you generally can’t deduct dues or fees paid for memberships in clubs organized for recreational or social purposes, dues paid to join organizations that align with your specific business industry are usually considered deductible.

This includes organizations, such as boards of trade, chambers of commerce, and professional organizations (like bar associations and medical associations).

22. Business Travel Expenses

Travel costs that are associated with conducting business are considered valid income tax deductions, as long as they are ordinary and necessary and last more than one workday.

This can include flights, hotel stays, meals, getting around locally via bus/train/ride sharing services, even dry cleaning or laundry expenses while you’re away from home.

You may want to keep in mind that lavish and extravagant travel conditions generally do not qualify for deduction.

Also, day-to-day commuter expenses between home and business are not typically deductible.

23. Business Gifts

If you give a gift to a client or vendor as a thank you for conducting business with you, the cost of the gift is generally deductible up to $25 per person per year.

Extra costs such as engraving, packing, or shipping aren’t included in the $25 limit if they don’t add significant value to the gift.

24. Health Insurance

Self-employed individuals with qualifying policies are typically allowed to deduct premiums for health, dental, and long-term care for themselves and their families.

25. Retirement Plan Contributions

Just because you don’t work for a large company doesn’t mean you can’t benefit from a tax-advantaged retirement plan. Indeed, freelancers often have even more options for saving this way.

Two self-employed retirement options you may want to consider: a traditional IRA (which allows you to contribute up to $6,500 per year in pre-tax dollars if you’re under 50, and up to $7,500 if you’re older) and a SEP IRA (which allows you to contribute up to 25% of your income for a maximum of $66,000 per year for tax year 2023).

Claiming Tax Deductions

Why is it important to claim tax deductions? They will help lower how much you pay in taxes and increase how much you keep to spend and save.

If, say, you earn $120,000 in a given year and can claim $25,000 in tax deductions, then you would only be paying taxes on $95,000. That can make a big difference in your daily financial life as well as your ability to build wealth and hit your financial goals.

Tips for Freelancer Tax Deductions

If you are a freelancer, there are a couple of smart guidelines to follow as you move through the tax year.

Keeping Records of Everything

As you earn, spend, and save as a freelancer, it’s important to make a budget and track where your money is going. Keeping records of how much you are paid from different clients or customers, what you are spending on your business, and when and where those expenses are incurred (and even how they are paid) can make a big difference when tax preparation time rolls around.

Also, if you ever need that information if audited, you will be glad you have those files.

Keeping Your Personal and Business Finances Separate

As you have learned, it’s important to keep your business and personal finances separate when you are self-employed. This means your workspace, your transportation and meal expenses, and the like.

This will have important implications at tax time. For instance, you may have to parse how much of your rent or mortgage and your utilities actually go towards your home-based business vs. personal use.

•   Opening a separate bank account for your business. It can be a smart move to keep your business finances separate from your personal to clarify your professional earning and spending. Many financial institutions offer business accounts to meet these needs. If you are just launching a side hustle or have a small, part-time gig, you might simply open up an additional checking and savings account to start.

Working With a Tax Professional

It’s not always easy to decipher the tax code as a freelancer or know which expenses qualify and to what expense.

Sometimes, working with a qualified tax professional can help. They are trained to know the ins and outs of the law and can guide you on correct tax filing.

The IRS offers guidelines for choosing a reputable tax professional that can be worth reading.

The Takeaway

As a freelancer, you can often lower your tax liability by deducting expenses that were incurred to operate your business.

There are a wide range of deductions you may be able to take, including some or all of your expenses for a home office, supplies for that home office, business events, advertising, self-employment taxes, and more.

In addition to managing your business income, you’ll also want to consider the full breadth of financial services you need, and compare which banking partner is best for your needs, whether personal or professional.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Do freelancers need to declare income?

Yes, if you are a freelancer, you need to declare your income and pay taxes on it. It is wise to pay quarterly estimated taxes to avoid a large tax bill and potential penalties at tax time.

How is income tax calculated for freelancers?

In addition to regular income tax, freelancers typically need to pay a self-employment tax of 15.3% to cover Social Security and Medicare taxes. Typically, employees and their employers split that bill. But self-employed people pay the whole thing.

What happens if you don’t file freelance taxes?

Not filing freelance taxes doesn’t mean you don’t owe them. Not paying taxes can mean you are still liable for the amount you owe, plus interest and penalties.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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