With the development of technology and the introduction of flexible work patterns, people all over the world have embraced the concept of working from home. Being your own boss comes with a number of perks, like setting up a home workspace that drives you and allows you to do the job that you love. But even though you don’t have to deal with the startup costs of setting up an office, hiring employees, and getting supplies, you’ll have other financial burdens. These range from a top-notch internet connection if you’re an affiliate marketer or a digital writer, to an ace camera and video recorder if you’re a YouTuber or a blogger.
Fortunately, there’s a silver lining – working from home makes it possible for you to legally write off certain tax deductions, which we’ll explore ahead.
Tax Deductions Self-Employed People Have to Worry About
When you’re an employee working in an organization, only 50% of the taxes for things like medical and social security need to be covered by you – the rest is taken care of by the company.
As a self-employed employee, you’ll need to pay the entire amount out of your own pocket. If you’ve decided to work for yourself, you need to be prepared to give up around 1/3rd of your income as tax.
The government understands the additional load on such people, which is why the IRS has left room to write off certain costs related to your business. In order to benefit from this, you’ll need to record all your expenses meticulously and categorize them properly. Make sure not to get rid of any of your receipts.
Taxes You Can Write Off If You Are Self-Employed
The following expenses are tax-deductible for people who work from home according to the IRS:
1. Your Work Space
Even if you’re working from home, you can have a specific space where you store all work-related documents and items and where you work. It doesn’t even have to be a separate room – a makeshift door or wall separating your workspace from your living room, for example, will count as your home office. This space may store your video equipment for blogging, content plans if you’re a freelancer, and so on. This home office can help you deduct some of your home expenses.
If your home covers an area of around say, 1,400 square feet and of that, 10% (140 square feet) is your home office, then you have the opportunity to deduct 10% from expenses like:
· Basic utilities like electricity and internet
· Property tax, etc.
Remote employees who work from home have this option only if their employer has set up this requirement. Those who work from home based on a negotiated work schedule are not applicable.
2. Equipment & Supplies
Office supplies and equipment that are essential for your business are tax-deductible. This includes repairs. Some items that fall into this category include:
· A working desk and chair
· Storage space like a shelf or a cabinet
· Equipment like a computer and printer
· A work phone – your phone bill will also be tax-deductible
· Specialized equipment like a camera if you’re a photographer, etc.
What you won’t be able to write off:
· Supplies to create a luxury office complete with a beanbag and espresso maker
· Equipment that doesn’t relate to your job- for instance, getting a high-tech camera if you’re a content marketer.
This also includes any software you purchase that is meant for your business, such as graphic designing software, processing software, etc.
3. Travel Expenses
Even if you’re self-employed and work from home, you may still need to travel to attend conferences or meet with existing or potential clients. Your travel expenses are tax-deductible. This includes airfare, living facilities, and so on.
4. Food & Entertainment
This is by no means a way for you to enjoy a seven-course degustation at a three-hat restaurant. A meeting over coffee or a quick lunch with a business client is deductible. According to the IRS, only 50% of your entertainment expenses will be deductible, so plan wisely. If you need to woo a number of new clients, only take the ones you expect the most return from a nice lunch. For the rest, coffee will do.
5. Ad Expense
From business cards and flyers to digital ads, it’s all deductible. This includes almost all your marketing expenses like hosting fees, purchasing materials for advertising, paying web pages for advertising your content, and so on.
Any courses and training sessions you take for the benefit of your business are deductible. This does not include long term plans, like getting a Master’s degree. It is more specific – for instance, if you’re a photographer, you may sign up for a webinar that helps you improve your photography skills.
7. Hiring Professionals
Even if you usually manage all aspects of your work yourself, there may be times when you need help. Whether your computer has a virus or you need legal help, the fee you pay to hire a professional to help you out is also deductible.
Apart from these, you can note down other expenses like presents for clients, shipping and post office fees, etc., and get the tax written off. The significantly reduced level of taxes makes working from home an enticing option and provides an incentive to those who are worried about the limited budget they’ll be operating on. They especially help in cost control if you’ve just created your self-employment business plan and will most likely be spending a fair bit on new equipment, supplies, specialty software, and advertising.
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