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TAXES FOR FREELANCERS, HOME-BASED SMALL BUSINESSES: Tips for Home Office Expenses and Taxing Issues

As a self-employed professional, knowing the rules of taxation and deductions available for freelancers, small businesses and the self-employed is very important. This article discusses how to keep track of your expenses and how to take the proper deductions.

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by Richard Chapo

Self-employed individuals often work out of their own home. If this is the case with you, here’s a primer on home office tax expenses you can claim on your taxes.

Home Office Expenses

America is a country built on small businesses. Yes, the big companies are the darlings of the media, but the guts of our economy are the little guys pursuing the American Dream from the extra bedroom. Fortunately, the tax code contains deductions tailored to help cut your tax bill.

KEEP A RECEIPT FOR ALL EXPENSES

When claiming home office tax expenses, it is important to keep a receipt for each and every amount you are claiming. When dealing with the IRS, receipts are your ammo. Keep them at all costs.

HOW SHOULD SELF-EMPLOYED PROFESSIONALS DIFFERENTIATE A BUSINESS EXPENSE FROM A HOME EXPENSE

When maintaining a home office, taxpayers often wonder how they differentiate a business expense from a simply home expense. The key is the square footage. Simply divide the square footage of your office by the total square footage of the home. This number is typically represented by a percentage such as 20 percent. Put another way, the home office represents 20 percent of the square footage of the house. Once you have the above answer, you can multiply it by the total yearly amounts paid for rent or mortgage interest, insurance, maintenance, utilities, taxes, depreciation of the home and repairs. Each of these home office tax expenses figures can then be deducted.

YOU CAN DEDUCT BUSINESS RELATED EXPENSES

In addition to the above, you can also deduct expenses completely related to the business. For instance, the purchase of a desk for the office is entirely attributable to the office and can be deducted in full.

Words of Caution

There are some limitations to home office tax expenses. If you are reimbursed by an employer for various home office expenses, you cannot also claim those expenses as a tax deduction. Sorry, no double dipping.

DON'T FAIL TO CLAIM A HOME OFFICE DEDUCTION OUT OF FEAR OF THE IRS AUDIT!

For some time, there has been an urban myth that the Internal Revenue Service keeps a close eye on home-based businesses. This may have been true ten years ago, but is clearly not the case today. To this end, the IRS has actually come out and issued clear statements to the contrary. Do not fail to claim home office tax expenses because of a fear of an audit. It is simply not a rational fear!

Running a small business can be both stressful and incredibly gratifying. Make sure you claim home office tax expenses to help your cash flow.

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Richard Chapo may be contacted at http://www.businesstaxrecovery.com
Richard A. Chapo is with BusinessTaxRecovery.com - Stop overpaying small business taxes. Read more business tax articles on tax relief and tax help.