You can save quite a bit of money by working at home, but at tax time you could end up with a large bill if you’re not sure of what you’re doing. Fortunately, there are lots of tax deductions you can take when you work out of your home that can offset those taxes and even give you the opportunity to get a tax refund each April.
Keep track of any business expenses related to your car. For example, if you drive somewhere to meet a client or go to a conference for people in your profession, you need to keep track of the mileage back and forth to these locations. You can also save any receipts for parking and tolls related to business transportation. You’ll be able to deduct a portion of these expenses off your taxes as business expenses.
Similarly, you can deduct a portion of your utility bills, such as your electric and water bills, from your taxes if you have a home business. You won’t be able to deduct the entire cost for the year because you use your home for personal reasons as well, but you will be able to deduct the portion that is used for business.
To determine how much of your electric and other utility bills to deduct, measure the area of your home used for your business and divide it by the entire square footage of your home. This is the percentage of your home that you use for your business. You can take off this percentage of your utility bills. For example, if you use 10 percent of your home for business, you can deduct 10 percent of your total electric cost for the year from your taxes. Your phone is subject to special rules, so contact a tax professional before deducting any phone costs from your taxes.
Keep receipts when you buy office supplies such as paper, staplers or scissors. If you purchase these items for your business and use them only for business purposes, you can deduct the cost off of your taxes each year. These supplies don’t have to be directly related to your business; any supplies that you use for business, even if they are everyday items like pencils, paper clips or printer ink, can be deducted from your taxes.
Don’t try to do your taxes yourself once you go into business for yourself. Instead, hire an accountant to take care of your taxes for you. Your accountant can help maximize your tax savings and make additional suggestions for things to do to save money the next year. Your accountant may also be able to help you determine your estimated tax payments so that you can pay taxes throughout the year and avoid penalties and interest at tax time.
It’s important to keep track of everything you’re doing that is related to your business so that you don’t end up with an insanely large tax bill at the end of each year. Pay your taxes throughout the year and claim as many deductions as possible and you will save money at tax time.