Tax Relief: Home Working for the Self-Employed

Tax returns are not the most riveting of reading, but they can be a world away from your day-to-day working lives. Self-employed workers with home offices must keep track of business costs to reduce their taxable incomes and avoid penalties. Taxable income includes all earnings, business expenses and depreciation. You’re eligible for tax breaks as a home worker if you meet IRS rules on self-employment, but take care to align your accounting methods with eligibility for tax relief. Working from home saves time and money, has fewer interruptions and produces less stress. It also provides opportunities for secondary businesses like tutoring or consulting. If you work from home for tax purposes in 2018 and previous years, these tips help you get the largest possible tax deductions.

Record all business-related expenses

Business-related expenses reduce your taxable income, which is the bottom line of your return. You can deduct 100% of these costs on Schedule A, Section 19 if you have a net profit. If you have a net loss, you can deduct only the percentage of business-related expenses compared to your overall net loss. Business-related expenses include: – Start-up costs, such as advertising, website development and product samples, – Legal and accounting fees, – Bad debts, – Insurance premiums, – Office supplies, such as paper, pens and printer ink, – Utilities and repairs for your home office, – Salary for a housekeeper or accountant, – Depreciation on equipment, – Resume printing for job hunting, – Subscriptions to online business management or marketing services, – Travel and mileage costs, – Fees for professional or legal services, – Classes, training or seminars related to your self-employment, – Home office furniture and equipment, – Home office repairs, maintenance and landscaping.

Deduct home office space and supplies

If you use part of your home exclusively as an office, you can deduct a percentage of the rent or mortgage, insurance, utilities and repairs. Deduct a percentage of the interest, property taxes and mortgage insurance if your home office qualifies as a business expense. Business deductions include office furniture and equipment. Office supplies include printer ink and paper, pens, desk pads and other accessories. If your business requires special equipment for safety and comfort, such as a computer, printer or scanner, you can deduct their full cost in the year you buy them. If you use your office space for both work and personal use, you can deduct a percentage of the expenses based on your office space, not the area of your home. Deduct a percentage of the utilities, repairs and insurance based on the percentage of your office space.

Deduct Internet and phone costs

Deduct 100% of Internet and phone costs if you use them exclusively for your business. If you use them for both business and personal calls, deduct a percentage of these costs based on the percentage of business use. Internet and phone costs include: – Computer hardware and software needed to connect to the Internet, – Internet access, e-mail and online telephone service, – Telephone services, including installation, long-distance calls and wiring, – Telecommuting or video conferencing equipment such as headsets, – Long-distance calls related to your business, – Personal long-distance calls, if they exceed 10% of total long-distance calls (e.g. 4 hours per month for relatives), – Internet connections for employees who work from home.

Deduct Professional Development

Deduct 100% of the costs for conferences and seminars that are directly related to your self-employment. Other self-development expenses include: – Business research, such as subscriptions and online services, – Business management or marketing services, – Legal and accounting fees, – Small tools and supplies such as calculators, flash drives and staplers, – Training materials, such as books and manuals, – Transportation costs such as train or bus fare, – Tuition, including fees, books and online courses.

Deduct Travel and Transportation Costs

Deduct 100% of the costs for business trips away from your primary residence. If you stay in your home city, you can deduct a percentage of travel costs based on the percentage of business travel. Travel costs include: – Airfare, train fare and vehicle rental, – Lodging and meals, – Parking, tolls and taxis within the city, – Transportation between the airport and hotel, – Parking, tolls and car rental for the drive between cities, – Taxi or bus fare between events and hotels, – Transportation between the hotel and work site.

Bottom line

Taxes are a necessary evil, but most people will find that they can reduce their tax liability with a few simple deductions. If you work from home, be sure to record all of your business expenses so you can deduct them on your taxes. Even if you don’t work from home, or are planning to start in the future, these are some great tips to keep in mind.

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