A lot of workers run their businesses out of their home offices. This is where their business energy grows, from the desk where they write great copy to the spot where they take calls from clients. A big thing that many freelancers might not know is that the costs of this specialized office can be used as a tax break.
Talk to a CPA in Columbia, MD, who specializes in small business taxation to make sure you are getting the most out of these benefits and figuring out the complicated tax code.
Freelancers can use the home office benefit to write off some of their home costs as business costs. These costs include rent or mortgage interest, services (like internet and power), and even some of their home insurance. People can get this benefit if they use a part of their home regularly for business reasons only.
Define your workspace.
Freelancers must clearly describe their specialized area in order to get the home office credit. This could be a separate room, a room area, or even a part of a place that is shared. The most important thing is to show that this place is only used for work.
Calculate your deduction.
There are two main ways to figure out the home office deduction:
- The simplified method: This is the easiest way for workers to figure out their taxes. It lets them claim a flat rate of $5 per square foot of their home office space, up to 300 square feet.
- The actual expense method: Freelancers can subtract the real costs of running their home office, like a part of their mortgage interest, property taxes, utilities, and insurance. This method, on the other hand, needs more thorough records.
Accurate record-keeping is essential.
No matter what method is used, it is important to keep very accurate records. Freelancers should keep detailed records of all the costs that come up with running a home office.
- Rent or mortgage payments: If you pay rent or a mortgage, keep track of your regular payments and any interest that may be added.
- Utilities: Keep different records of your internet, gas, power, and water bills for the months when your home office was used.
- Insurance: Keep track of your homeowner’s or renter’s insurance payments.
- Home office supplies: Keep the receipts for office furniture, equipment, and tools that you buy for your home office.
- Depreciation: You can subtract a part of the value of any business tools you bought for your home office over time, such as computers and chairs.
Beyond the basic deductions.
The home office deduction is one of many tax breaks that freelancers can get. Other possible deductions are:
- Business travel expenses: When you travel for work, you can deduct costs like your hotel stay, meals, and flights.
- Professional development: For professional growth, you may be able to recover the costs of classes, lectures, and industry gatherings.
- Business tools: You can often discount the cost of computers, software, and other important business equipment.
- Marketing and advertising: You may be able to claim costs like online ads or website creation that help you promote your freelance services.
Consult with a tax professional today.
Sometimes, the tax code is hard to understand and can change. Talking to a tax expert who specializes in freelancing can help workers get the most out of their tax benefits and give them good advice.
They can help you figure out the best way to claim your expenses, keep your records in order, and let you know about any changes to the tax rules that might affect your deductions.
Freelancers can lower their tax bills by learning about the home office benefits and keeping good records. They can then put the money they saved back into their businesses.