Working from home is a growing trend and more and more people are coming to terms with the perks of it. Many small startups have embraced this remote working movement and there are numerous people who like to be freelancers and solopreneurs. While this is nice and gives you more control over your personal and professional life, there’s a time of year when you can make a royal mess of everything – the tax time.
There are some tax benefits for doing your job from home but it’s also easy to make mistakes and be the subject of the dreadful audit. Don’t do these blunders to stay out of problems when filing this year:
Taking Undue Deductions
When you are working from home, you can take many deductions for various expenses. You can even deduct utilities used for your office work, transportation costs to outside meetings, regulatory fees paid to local governments and many others. The problem arises when you try to write off costs that are not related to your work. For example, you cannot include that cost of the new music system installed in your home office or the lunch with your partner at a restaurant down the street (unless it is a business meeting). Any deductible expense should be regular and necessary to run your business.
Not Knowing the Tax Group You Belong
Not every person working from home will fall under the same category. For 2018, people who are a part of a large corporation but are stationed at their home will not be treated as self-employed. They have to fill up the W-2 form and their deductions will be on Schedule A from next year. It means that they can have a maximum 2% of their gross income as deductibles. Besides, there will be no home office deduction for the telecommuters who are the official employees of a large company.
Tossing out the Receipts
Don’t do that because if you are due for an audit, the IRS won’t accept credit card or bank statements as the proofs of your business expenses. For example, your statement may show a $2,000 bill at the office supply store. But, without receipts, there is no way to find whether you have spent that money on purchasing items for your office or for your kids.
Keep separate tracks of business and personal expenses. It will help you take all the deductions you deserve as a self-employed taxpayer.
Filing for Inapplicable Home Office Deductions
You use a room in your home as the home office does not mean that you are eligible to take off a portion of your monthly mortgage fees or home rentals. You can do that only when you use that place exclusively for a home office and you do carry out all of your business in that place. It won’t be applicable even if you work from home but have an office outside.