Do you work from home? Did you know that there are some significant tax deductions and incentives for the self-employed and freelancers?
As someone who works for themselves and has the flexibility to work from anywhere, there are a ton of deductions that you need to know about that can save you a bundle on your taxes! There are just a few rules we should review first.
Employees of Companies Who Work from Home
If you’re an employee of a company who works from home, you need to adhere to some guidelines. Your home office must be used exclusively for work, and you must use that space to do at least 50% of your work. It also must be stipulated in your contract with your employer that you maintain a home office and that they do not reimburse you for expenses. You also must complete Form T2200, Declaration of Conditions of Employment.
Self-Employed Freelancers Who Work from Home
It's a little simpler if you’re a self-employed individual who works from home. Your home office must be your principal place of business and be used exclusively for business purposes.
Either way, you can benefit from some major tax incentives for freelancers and the self-employed that come with working from home!
Tax Deduction #1 - Rent and Mortgage for Home Office
This is probably one of the best-known tax deductions for those who work from home, but you'd be surprised just how many people miss it. Take advantage of deductions related to your rent or mortgage!
However, you can't just deduct your entire house, apartment, or condo. Instead, you can only write off the percentage of your home that you use for work. For example, if you live in a 1,000 sq. foot condo/apartment and your office only takes up 100 sq. feet, then you can only deduct 10% of your rent.
Further complicating matters is if you use your office for both personal and business. If that’s the case, you can only deduct the time you spend working from home professionally. Going back to the previous example, if you use the space for an eight-hour workday, seven days a week, then you can only deduct 33% of the 10% of the area (3.3% of the rent in total).
Unfortunately, you need to be self-employed to deduct your mortgage interest. Those who have a workspace at home but are employed by a company can only deduct their rent.
Tax Deduction #2 - Home Office Expenses
Your rent/mortgage isn't the only thing you can write off when you have a home office. Just like with a regular office out of the house, you can write off several expenses related to your building/space. This applies to both those who are self-employed and those who work from home for a company. Either way, you can benefit from many of these work from home tax deductions.
Heat, lights, and hot water are all considered to be legitimate expenses, as are maintenance costs. If you’re self-employed or are a commission employee, you can also write off your property taxes and insurance.
Tax Deduction #3 - Car and Travel Expenses
One of the major benefits of working from home is that you can really work from anywhere! So long as you have an internet connection, the world is your office. To facilitate this, you can deduct all of the expenses related to the business use of your vehicle. Read on...
When working from home, you may need to travel to get to your clients. If you use your vehicle exclusively for business, you can deduct 100% of the costs for gas, maintenance, parking, insurance, and other fees. If you only use it part of the time for business costs, then you can deduct that percentage. This requires you to keep a careful travel log to make sure that you have an accurate record of business usage.
Believe it or not, this also applies to your travel expenses if you’re visiting another city or place for a business-related event. You can deduct 100% of your travel expenses (including airfare), public transportation, hotel, and conference costs. However, you can only deduct 50% of your meals and entertainment costs during your business trip.
Tax Deduction #4 - Business Startup Costs
If you’re planning on launching a brand-new business as a self-employed virtual bookkeeper, you're going to have some startup costs.
Let's say that your old computer just isn't up for the job. Well, then you can deduct the cost of the new computer, as well as necessary accessories such as a monitor, keyboard, mouse, speakers, printer, and other tools required to do your job.
You're going to need a place to put that computer, so you can also deduct the cost of a desk and chair. (We recommend not skimping on the quality of your chair, as you’ll be spending a lot of time in it!)
You can also deduct the costs of advertising, delivery, legal and professional fees, office supplies, telephone and utilities, and more!
Please keep in mind that if you’re using any of these services in your personal life as well (for example, home internet), then you can only deduct the percentage you use for work, just like with deducting your home office space.
Learn to Manage your Tax Deductions & Bookkeeping
If you would like to get a better handle on your self-employed bookkeeping and accounting, we can help. We offer personalized bookkeeper training to empower you to manage your books on your own. Or, if you find it’s just not a good use of your time, you can outsource your bookkeeping to us and we can take care of it for you. Contact us today to chat about your business needs.