One of the many benefits of working from home is all of the cost savings that come along with ditching the commute. Part of the way you can save money by working at home is by deducting certain job-related expenses from your taxable income. If you work from home, here’s what you need to know about taxes.
Home Office Deduction
Setting up a home office is the simplest way to deduct your work expenses. There are a few general requirements to keep in mind, however. First of all, the home office must be used exclusively for your business or job. The home office doesn’t need to be a separate room or physically marked off in any way, as long as the space is used for business purposes only. In some cases, you might want to mark off the space just to play it safe. It must also be the main place that you conduct business. Bottom line: you can’t just set up a computer in the spare bedroom, print off an invoice every week, and still claim the room as your home office.
The same qualifications apply to both home based business owners and employees that work from home.
Once you have your home office set up, you’ll then be able to measure the space and figure out what percentage of your home is being used, and deduct that percentage from your mortgage or rent payment and utility bills.
In some cases, you’ll be able to deduct the purchase of office equipment as well. The requirements for doing so are similar to those for deducting a home office. For example, if you buy a laptop, the purchase price can only be deducted if the laptop is used exclusively for your work. The same goes for other equipment as well. Home office furniture, for example, can also be deducted provided its used soley for your business. You can also usually deduct the cost of repairs or maintenance for your home office equipment.
Exceptions to Exclusive Use
If your work at home career requires storage space, such as if you have an inventory-based business, you can deduct the cost of storage space for your business similar to the way you would do so for your home office. The difference here is that the storage space does not need to be used exclusively for business purposes.
Another exception to the rules regarding exclusive use is if you run a home daycare. For example, if you mainly use your living room during the day when children are in your home, you can still deduct that area even though you probably use the space for personal use after hours.
Over the year, keep your business-related receipts and track your expenses using a system that makes it easy to stay organized, like a spreadsheet. This will save you a lot of headaches when tax season rolls around. If you’re unsure about filing correctly, don’t hesitate to hire a tax professional who’s experienced with your type of business.
While it’s definitely worth it to learn your way around the tax laws that relate to your business, it’s better to play it safe when it comes to filing your taxes. Having a tax expert handling or at least looking over your tax records frees you up to learn about other aspects of running your business, such as how web conferencing works, or what the latest software programs that are available that will help you run your business more efficiently. Don’t let filing your taxes overwhelm you – you’ll get the hang of how it all works as you gain more experience running your business.
About the Author
Kylie Worthington is a home-based freelance writer from the Midwest. She studied journalism in college and decided to build a work at home career in order to be close to her family – a decision she’s never regretted. She loves checking out new office equipment, especially all that’s featured at http://officedeskreviews.com.