Here’s the truth: The AI industry is growing faster than any other industry. In 2024 alone, the global AI market was valued at $279.22 billion and will reach $1,811.75 billion by 2030. There are around 3.775 million AI engineers globally as of 2024. And just in 2025, there are over 18 million freelancers registered on Upwork.
What do these numbers mean? It means the industry is growing, people are centralizing themselves in freelancer platforms and channels like Slack, Notion, and Discord. While this mechanism works great for the job, it’s not so great for when the IRS comes knocking. Do you need receipts for tax deductions? If you’re trying to claim deductions or credits during tax season, you’re more likely to get audited by the IRS.
So what exactly do you do as an AI freelancer in this booming economy and unclear IRS rules? You learn how to become audit ready and claim your work from home tax deductions, of course! So let’s talk about everything you need to know as an AI freelancer in 2025 and your tax obligations.
How are AI freelancers paid?
AI freelancers often receive payments through various platforms and methods, including:
- Upwork: Offers structured contracts and payment systems.
- Fiverr: Provides gig-based payment structures.
- Direct Transfers: Payments via PayPal, Wise, or bank transfers.
- Cryptocurrency: Some clients pay using digital assets.
- Communication Platforms: Agreements and payments arranged through Slack, Notion, or email.
There’s no doubt that these platforms are flexible and accessible. But they do make it harder to have formal documentation you need to avail tax deductions for freelancers or be audit-ready. In this case, it’s up to each freelancer to maintain their own records with as much proof as possible.
If you earned more than $600 from a U.S. client directly, you might get a 1099-NEC. But if you were paid via Stripe or PayPal, you might get a 1099-K or nothing at all if you’re under the reporting threshold. In either case, the IRS still expects you to report all income. Many freelancers miss this and unintentionally underreport, especially when they're juggling clients across multiple platforms.
Why is there a lack of invoices in AI freelancing?
AI freelance activities are quite informal in nature. And that means there’s no formal invoices or payment methods at play. But why is that so? Here are a few reasons why you, as an AI freelancer, don’t have proper invoices:
- Quick Gigs: You’re engaged in short term gigs that are communicated, delivered, and paid for via text messages, videocalls or emails. No invoicing involved.
- Async Teams: You’re part of distributed teams working across time zones without centralized documentation or regulations.
- Platform Limitations: Some platforms don't automatically generate detailed invoices such as Slack, Discord, etc.
Why this is a problem
This lack of documentation complicates the process of claiming tax deductions for freelancers. Many AI freelancers often wonder, “do you need receipts for tax deductions?”. And the answer is yes. The IRS requires proof of income and expenses to validate deductions. Without proper records, freelancers may miss out on eligible deductions or face challenges during audits.
What is self employed tax credit?
The term "self employed tax credit" often refers to various tax benefits available to self-employed individuals. These credits were introduced to provide financial relief for self-employed workers who couldn’t work due to COVID-related reasons, such as illness, quarantine, or caregiving.
One notable example is the tax credit for paid sick and family leave under the American Rescue Plan Act of 2021. Eligible self-employed individuals can determine their credit by completing Form 7202.
Why most freelancers miss self employed tax credit
The self employed tax credit and related deductions are often missed by AI freelancers not because they’re ineligible, but because the system isn’t built for them. Here's why so many let it slip through the cracks:
Lack of awareness
Freelancers in fast-evolving industries like AI, Web3, or prompt engineering rarely receive onboarding about taxes when they start taking on clients. Unlike traditional employees who get W-2s and HR briefings, solopreneurs are left to navigate IRS rules alone. They’re left wondering, “do you need receipts for tax deductions?”
Many don’t realize that credits exist for things like paid family leave (Form 7202), health insurance deductions, or even retirement contributions. They assume these benefits are reserved for “real businesses”—not solo operators working out of Notion and Discord.
This mindset leads to underreporting or missing out on thousands in potential tax savings.
Complex documentation requirements
Even when freelancers do know about the credits, they often give up trying to claim them due to the messiness of their records. Without a formal payroll system or invoicing tool, proof of income and work can be hard to organize.
For example, if a client paid you via Stripe and approved your deliverable via a Slack message, you technically earned business income. But unless both the payment and the task approval are documented and stored properly, you may not have enough evidence to claim deductions or prove eligibility for credits.
Many IRS forms, including Schedule C and 7202, require dates, amounts, and business justification, which are hard to provide when your paper trail is scattered.
Misinformation on social media
Adding to the confusion is a wave of misleading tax advice spreading across TikTok, Reddit, and Instagram. The IRS recently warned against fraudulent claims about a so-called “self-employment tax credit” that doesn't exist.
Some influencers suggest you can write off your entire rent or claim thousands back with zero income. In easier words, that’s a surefire way to trigger an audit. Unfortunately, this noise makes legitimate credits harder to spot, and creates fear or skepticism about trying to claim anything at all.
How to extract proof of work from different platforms
AI freelancers often utilize various platforms, each with its own methods for tracking work and payments. Here are some that you might already be using and where to find proof of work in eahc platform:
- Upwork: Provides certificates of earnings and detailed contract information per client.
- Fiverr: Offers order history and payment summaries.
- Slack & Notion: Work agreements and approvals are often communicated via messages or shared documents.
- Email: Payment confirmations and work agreements may be found in email threads.
Now, let’s talk about consolidating these together in one place. Here’s what you should do:
- Download Certificates: Regularly download earnings certificates from platforms like Upwork.
- Save Communications: Archive important messages and emails related to work agreements and payments.
- Organize Files: Store all documents in a structured manner for easy access during tax season.
Receiptor AI can help by automating the extraction and organization of such records, ensuring that freelancers have comprehensive documentation for tax purposes. Plus, you get a clean work from home tax deductions claim!
How to turn scattered proof into a digital ledger
Your business might be booming but your bookkeeping is a mess. But with these four steps, you can turn your scattered bits of proof into an audit-ready ledger:
1. Extract all receipts from various sources
Start by gathering every proof of payment or task completion, no matter how informal. This includes:
- Emails with payment confirmations
- Stripe and PayPal transactions
- Notion task approvals
- Upwork certificates of earnings
- Slack messages
These scattered bits of proof are essential for validating income when filing taxes or applying for the self employed tax credit. AI freelancers often work across multiple platforms, so having a system that pulls everything into one place is key.
Tip: Receiptor AI automates this step with its retroactive extraction, saving hours of manual tracking and reducing the chance of missing deductible expenses.
2. Categorize them appropriately
Once collected, organize your receipts and confirmations into clear categories. This could mean sorting by client, project, payment type, or type of expense (e.g., software, utilities, gear). Categorization is critical when filling out a self-employed tax deductions worksheet, since tax software and the IRS require itemized input.
This not only helps during tax season, but also gives you better visibility into where your income is coming from and what you’re spending on your business. Receiptor AI uses smart tagging to auto-label files, so your ledger stays structured with minimal input.
3. Export to a tax software
After categorization, your next step is to export this clean, organized data to a tax platform. Most AI freelancers use tools like QuickBooks, Xero, or Wave to track their finances, realize their work from home tax deductions and all of these support importing CSV or PDF files.
Receiptor AI allows you to export your entire digital ledger in formats compatible with popular accounting tools and cloud storage platforms like Google Drive. By exporting regularly, you stay ready for quarterly tax estimates, work from home tax deductions and reduce the risk of year-end scrambling.
Tip: A consistent export routine ensures nothing gets lost between platforms or tax deadlines.
4. Know your tax deductibles as an AI freelancer
Understanding what qualifies as a deductible is one of the most powerful ways to lower your tax bill. According to the IRS, expenses must be ordinary and necessary for your business to be deductible. Here is an extensive list of work from home tax deductions for freelancers:
- Laptop, monitor, webcam, microphone, or other essential hardware
- External hard drives, stylus tablets, VR headsets (if used for work)
- Repair and maintenance costs for work equipment
- AI tools (ChatGPT Pro, Midjourney, Jasper, Claude, Synthesia, etc.)
- Cloud storage (Google Drive, Dropbox)
- Project management tools (Notion, Trello, Slack Pro)
- Creative software (Figma, Adobe Suite, Final Cut Pro)
- Home office space (must be used regularly and exclusively for work)
- A percentage of rent or mortgage (based on office square footage)
- Utilities like electricity, internet, and water (pro-rated)
- Office furniture (desk, chair, lighting, etc.)
- Online courses or certifications (Coursera, Udemy, DeepLearning.ai)
- Books, research journals, or paid newsletters related to your field
- Conference fees or virtual event tickets
- Accounting or tax filing services (like H&R Block or TurboTax)
- Receiptor AI subscription
- Business insurance
- Banking fees or payment platform charges (PayPal, Stripe)
- Transportation for client meetings, networking events, or speaking gigs
- Meals while traveling for work (50% deductible)
- Hotel or Airbnb (if traveling for a business reason)
Keeping track of these tax deductions for freelancers throughout the year ensures you're not scrambling to figure out what qualifies later. Receiptor AI helps surface these patterns by tagging expenses and syncing with your digital ledger, so you're always ready with evidence when you need it.
Don’t let the AI boom lead to tax chaos
The rapid growth of the AI industry offers immense opportunities for freelancers. However, without proper financial documentation, these opportunities can lead to tax complications.
By proactively maintaining records, understanding available tax deductions for freelancers, and utilizing tools like Receiptor AI and self-employed tax deductions worksheets, freelancers can navigate the complexities of tax season with confidence.
Whether you're billing through Slack or earning through Upwork, Receiptor AI turns your scattered records into tax-ready exports. Try it today.
