For most people, working from a home office means you qualify for a number of income tax deductions which helps offset the amount you owe in self employment taxes. The key to work from home tax deduction is to keep track of your expenses throughout the year, and to keep good records for at least 7 years after you file your taxes in case you are ever audited and have to provide proof.
Here are 10 tax deductions you may qualify for when you work from home:
- Use of Home – when you have an area of your home that is used for business-only, you can deduct a percentage of your rent or mortgage payment, as well as a percentage of utilities, homeowners or renter’s insurance, home security system, cleaning services and real estate taxes. To figure out what percentage you are allowed to deduct, determine the square footage of your office or desk area, as well as any storage used exclusively for business items. If the business area of your home is 8% of the total square footage, you can deduct 8% of your rent or mortgage payment, as well as 8% of utilities, taxes, or homeowners or renter’s insurance.
- Business Supplies – keep your receipts when you buy postage for your business, office supplies, software or pay for your internet service. If you use these items exclusively for your business, you can deduct them on your taxes.
- Business Phone – keep a cell phone or landline exclusively for business and you can deduct the cost of the phone bill. While you can use one phone line for both personal and business use, it can be complicated to calculate the amount the phone was used for business versus personal use and most people find it much easier to keep a dedicated line for business purposes.
- Research and Educational Materials – if you must purchase reference materials or online subscriptions for your business, you can deduct the cost of these expenses on your income taxes.
- Travel and Mileage Expenses – if you travel out of town for meetings, conferences, to conduct research at the library, meet with clients or other business-related events – you can deduct the cost of travel on your taxes. Travel deductions may include tolls paid, parking fees, flights, trains, gas or miles traveled. Also keep receipts for meals you eat while traveling as some or all of those expenses can be deducted, as well.
- Health Insurance Premiums – sole proprietors who pay for their own health insurance can deduct the cost. This does not extend to family member health insurance premiums, unless the family members are listed as employees of the business.
- Tax Software or Accounting Services – if you hire an accountant or bookkeeper to help you prepare your tax return, or use tax preparation or return software like TurboTax, the cost of such services are tax deductible.
- Meals – if you meet with a client at the coffee shop or restaurant to discuss business, you can write off a portion of your meal expenses (usually 50%).
- Subcontractors – if your business grows to the point where you need additional help to complete some of your projects, you could bring in subcontractors. These people are not employees, and generally work on a specific project for a specific period of time. The money you pay them is deducted from your income. You will need to issue Misc-1099 forms to show how much income they earned from you.
- Equipment for Business – if you purchase new office furniture, computers or laptops, or other equipment needed for your business, the amount can be deducted on your taxes. Most items can also be depreciated over time (or all at once under section 179).