How to Track Expenses for Work at Home Individuals

Working at home is a new experience for many, and in today’s economy, it is becoming more common. If you work from home as an independent contractor (freelancer), you are responsible to take care of your own tax withholdings and keep track of expenses you are able to deduct. Cut Your Taxes

Though there are many advantages to working from home, one major disadvantage is having to pay100% of your Social Security and Medicare taxes. In 2014, this amounts to 15.3% of your income. To keep your self-employment tax as low as possible, it is important to tax advantage of every deduction available to you. However, to take a deduction, you must have documentation to back it up.

Expenses that are Deductible: There is a wide range of expenses you can deduct if you work from home as a freelancer. If you can legitimately claim a portion of your home as an office, you may deduct a percentage of your rent/mortgage, phone, utilities and other household expenses. The IRS has simplified this deduction by giving taxpayers the option to claim $5 for every square foot of your home used for business, up to a maximum of 300 square feet. If you choose this option, it will make your bookkeeping much easier.

Aside from the home office deduction, you may also be eligible to claim:

  • Vehicle Expenses/Mileage
  • Travel (airfare, bus, train etc.)
  • Hotels
  • Meals/Entertainment
  • Business Phone Line
  • Advertising
  • Continuing Education
  • Business Seminars
  • Health Insurance Premiums

Keeping Track of Home Business Expenses: There are many options these days for tracking expenses. A number of software programs are available to make life easier, but it is always a good idea to keep everything backed up on paper. In conjunction with your favorite software program, you should keep a ledger book as your master file wherein you can record each business-related expense. In addition, you should keep a small notebook with you at all times so you can record your expenses on-the-go and later enter them into the master ledger.

For mileage, keep a separate book in your car and record the beginning and ending mileage for each business-related trip you make. For the receipts, keep the paper copies organized by month and keep them in a shoe-box sized container. To make things easier, use a designated credit card for all (and nothing but) your business expenses. This will give you extra tracking capabilities.

Tracking expenses when you work from home takes a little extra effort. However, like any new habit, once it is formed and you are used to doing it, it will not feel like extra work. For further recommendations on the best ways to keep track of deductible expenses, speak to an accounting professional.

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