About one-third of American workers today have a freelance job. Some use it as a sideline while others master the struggles and triumphs of freelance full-time workers. However, they all have the same difficulty each year: finding out freelance taxes.
One of the most debated deductions for freelancers and small business owners is the deduction for the home office. Behind this simple term, however, hide many questions. What counts as a home office? Who is qualified for this? And what would you have to show in case of an audit?
We've consulted a few industry professionals to get the final word on how the Home Office withdrawal works. Here you will find everything you need to know to save a little more money in the coming tax season.
How to Know If You Qualify
If you work from home, you actually have a good chance of qualifying for the home office withdrawal. [1
This room does not even have to be a whole room. Setting up an office in one corner of an existing room also counts. However, it can not be a multipurpose room. "It must be your principal place of business and be used regularly and exclusively in your business," says Remington Trolli, who handles bookkeeping and tax advice for small businesses.
The office in the room does not count if you also use it as a breakfast nook when you are not working. And if you have a main office room outside your home, like a coworking room, you probably can not get a deduction for the home office either.
It's fine to work outside your home, but in your home office, your primary workspace must be to count on the deduction. Regardless of whether you rent or own a home, you can use this deduction – but only if you have a specific work-only area Tax deduction for the home office "width =" 1600 "height =" 900 " data-credittext = "Natee Meepian / Shutterstock" data-crediturl = "https://www.shutterstock.com/image-photo/close-businessman-accountant-hand-holding-pen-712434244" src = "/pagespeed_static / 1 .JiBnMqyl6S.gif "onload =" pagespeed.lazyLoadImages.loadIfVisibleAndMaybeBeacon (this); "onerror =" this.onerror = null; pagespeed.lazyLoadImages.loadIfVisibleAndMaybeBeacon (this); "/>
If If you qualify, you can calculate the deductible amount in two ways.
The default method is the more complicated of the two. "[It] requires you to accumulate all expenses for the home office and pay that amount each year," explains the licensed one CPA Riley Adams I need to figure out what percentage of your home office is occupied by your home office. You can then multiply that percentage by the cost of mortgage or rent, utilities, maintenance, and other household expenses to find out how much of that cost is for your home office.
If you go this route, you will need to carefully record your household bills year-round to be able to make your calculations (and provide evidence in an audit). However, you can simplify life by using the simplified method instead.
Using this method, multiply the total area of your home office by $ 5 to get the deductible amount. For example, an office of 25 square meters would give you a $ 125 deduction.
"To find out which method is more advantageous, you need to calculate both methods," says Adams. If you have not carefully logged your household expenses throughout the year, the simplified deduction may be your only choice.
Should you use the deduction for the home office?
The deduction for the home office is one of the simpler tax deductions for freelancers. If you have a special business at home and do most of your work there, there is no reason not to use it.
This deduction can also serve as an important reminder of why you as an entrepreneur must keep careful records of freelancers. However, you do not have to keep all the evidence of your utility in a file folder. Try financial software like QuickBooks Self-Employed to make this easy deduction even easier. As a freelancer, every dollar counts, so do not hesitate to claim the deduction for the home office (and any other deduction you can).