Depreciation

When you buy a major asset for your freelance business — a $3,000 MacBook Pro, a $5,000 camera system, $4,000 in office furniture — the IRS generally expects you to deduct the cost over the asset's "useful life" rather than all in the year you bought it. This spreading out of the deduction is called depreciation.

The IRS assigns a useful life to different types of assets. Computers and peripherals: 5 years. Office furniture: 7 years. Vehicles: 5 years. So if you buy a $3,000 laptop with a 5-year useful life, you'd deduct $600 per year for five years under straight-line depreciation (the simplest method).

In practice, most freelancers don't use standard depreciation because the IRS offers much better options. The Modified Accelerated Cost Recovery System (MACRS) lets you front-load deductions, taking larger deductions in earlier years. Bonus depreciation (currently 60% for 2024, phasing down 20% per year) lets you deduct a large percentage of the cost in the first year. And Section 179 lets you deduct the entire cost in year one, up to $1,220,000 (2024 limit). For most freelancers, Section 179 is the go-to because it gives you the full deduction immediately.

Depreciation matters because it directly affects when you get your tax savings. Deducting $3,000 this year (via Section 179) puts money back in your pocket now, versus spreading it over five years. For freelancers with variable income, timing your deductions strategically — taking them in high-income years — maximizes their value. Understanding depreciation also helps with financial planning: that laptop isn't just a $3,000 expense, it's a $3,000 deduction that saves you $900-$1,200 in taxes depending on your rate.