There are a number of tax advantages available to those who work from home as freelancers or telecommuters. When records are carefully kept and managed, you can find substantial tax deductions that will make a big difference when tax season rolls around. The trick is knowing what expenses to keep track of and how to report them.
Home Office Deduction
It is true that having a home office can be a tax deduction. However, it’s not always simple to understand exactly how to track that deduction. In 2013, the IRS made it much simpler to track and file for an in-home office deduction by offering a standard deduction based on the square footage of your home office. Before this simplification, it was sometimes difficult to know exactly how to calculate this important tax deduction.
Know Your Expenses
Many business expenses are tax deductible whether the business is in the home or at an office. When you work from home, it can be difficult to distinguish between purchases that are for the home from those that are for your business. According to the IRS, you should consider whether expenses are “ordinary and necessary” to carry on your business or employment. Some business expenses are limited to a 50% deduction based on what they are used for.
You may also be eligible for tax deductions on your travel expenses. If working from home means that you must travel to and from client locations, as well as paying for lodging and food while traveling, you may be able to deduct those expenses.
Be Sure to Keep Records
If you plan on deducting home office expenses from your taxes, you need to be sure to have accurate and well-kept records that document these expenses thoroughly. These records will be the only way to prove to the IRS that you qualify for deductions. I recommend that you keep a written record or log book just in case any questions come up. You should keep and date bank statements, receipts and any other record of expenditures so that you can fully prepare for tax season as it approaches.
Even though your office is in your home, you may still have employees or contractors that work for you. This means you may be entitled to some employee expense deductions as well. Be sure to keep track of all employee expenses and talk to an accountant about how to best apply these expenses for maximum tax deductions.
Because home office tax deductions can be challenging to maintain and oversee, many have chosen to work with an experienced accountant to ensure the best possible results. Hacker Accounting has serving clients that work from home offices for many years and we are very familiar with the types of deductions you may be eligible for. Give us a call to learn more about how we can help you. 602-375-5251