Working for yourself essentially means that you’re taking on all the risks and associated costs that come with operating a business. While some small business owners dread tax season because of all the paperwork and reports, there are actually some advantages. Seeing as how you are responsible for all expenses and risks, the government likes to cut you a break. Below are some of the most common tax breaks you could take advantage of in your work-from-home business:
- Home Office
The great thing about having a home office is that you can deduct part of the costs of expenses. Keep in mind, however, that this deduction is a bit complex in nature. If this is your first time filing your own taxes, you might want to work with an accounting firm to ensure that you’re itemizing the deduction properly.
In a nutshell, the costs of the workspace that you use exclusively for business can be written off. Whether you rent or own your property, it can be deducted from your expenses. Expenses that can be deducted include a percentage of your mortgage interest, property taxes, utilities, insurance, and maintenance. In order to get the proper percentages you’ll need to know how large your home office is. So if the office space is 10% of the home then you can deduct up to 10% from the above discussed expenses.
- Phone and Internet
Along with your home office deduction, you can also deduct a percentage of your phone and internet service. What must be clear, however, is that you can only deduct the percentage that is related to business. So if your internet or home phone are used personally and professionally you cannot deduct the entire bill. So if you use the phone and internet 50% of the time for business you can deduct 50% of your monthly bills.
- Health Insurance
Part of being self-employed means paying for your own healthcare. If you’re paying your own insurance premiums month, you can deduct the entire amount. If you also provide health insurance for your spouse or children, you can deduct for those as well.
Meals are tax deductible for self-employed individuals. However, this is only in an instance where you had to travel on business and eat or you were entertaining a client. While it’s probably not a good idea to start taking all of your clients to five star restaurants and picking lobster, you can deduct as much as 50% of the cost of the meal. Be sure to keep your receipts on hand in case you’re audited.
Do you travel often for business? If so, you could also write off the expense. In order for traveling expenses to qualify for a deduction, the trip must have been longer than a workday, required you to sleep outside of the home, and take place outside of the city your business is located in. If the traveling costs qualify, you can deduct transportation to and from the location, lodging, and meals. You can deduct 100% of your traveling expenses with the exception of meals, which only qualifies for 50%.
This is only the tip of the iceberg when it comes to tax breaks for the self-employed. Many of these deductions are a lot more complex than described above, which is why understanding tax law or speaking with an accounting firm for assistance is ideal. In closing, it’s a good idea to keep all of your receipts and documentation stored in a safe place just in case the IRS wishes to evaluate your expenditures further.