The Blog

If you work from home full time as a freelancer or independent contractor, you may be eligible for a range of tax deductions not available to traditionally employed people.

Here are five of the main ones that can help you save on your taxes.

taxes

1. A Home Office Deduction

This is applicable if you are running a business out of your home or are telecommuting – that is, working for a company but not actually in their physical location.

If your home office is used exclusively and regularly for business purposes, you may be able to deduct a portion of your home-related expenses, such as mortgage interest, property taxes, homeowners insurance and some utilities.

Make sure that the space is used exclusively for business and does not double as the family game room when you are not working. An Internal Revenue Service (IRS) assessor will come to examine the workspace and determine what percent you can deduct based on what they find.

Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

2. Mileage and Travel Expenses

If you use your own car for business travel, or pay for meals and accommodation out of your own pocket (such as when you need to visit your company’s home office or go see clients), these expenses might qualify for a tax deduction. Keep all receipts and categorize them, such as food, transport and so on. Note that you must have actual receipts, not just credit card statements.

You can also only claim amounts that are not covered by your employer’s reimbursement policy. For example, if they only give you a hotel stipend of $50 but your accommodation costs $100, you can claim the other $50 on your taxes.

For car mileage, keep a log in the car if you can, and also track things like oil changes and maintenance.

3. Itemized Deductions versus Standard Deduction

In the 2016 tax year, the standard deduction for a single person in the US was $6,300 and for head of household it was $9,300. If all your expenses will be less than those amounts, depending on which is applicable to your situation, there’s no advantage in itemizing all your receipts.

Also note that your employee expenses need to be more than 2% of your gross income. For example, if you earn $100,000 per year, your expenses would have to be greater than $2,000. If you then had $10,000 in receipts, you could only claim $8,000 of them – another reason to consider itemized versus standard deductions each year.

If you do want to deduct employee expenses, report them on Form 2106, Employee Business Expenses, which you attach to your Form 1040. The deductible expenses from Form 2106 are entered on line 21 of your Schedule A, Itemized Deductions.

4. Self-Employment and Independent Contractors

These workers are eligible for many of the same deductions, and subject to the same record-keeping requirements as employed workers and telecommuters. Self-employment income and expenses are recorded on Schedule C of your tax return.

In this case, the full amount of eligible expenses can be used, with no 2% minimum to claim the expense.

5. Self-Employment Taxes

If you earn more than $400 net income in a single year, you have to pay self-employment taxes in addition to income tax. The IRS uses a “pay-as-you-go system” for self-employment tax, so try to discipline yourself to send them estimated tax payments throughout the year, such as every quarter, so you don’t get hit with a huge tax bill at filing time.

taxes
Legitimate Online Jobs (FREE DOWNLOAD)

Leave a Reply