While there are plenty of pros to working from home, the downside is it can cost you plenty. from the high-speed internet to stay in touch with clients to the office chair that keeps you comfy while you work.
Fortunately, the government recognizes this and offers tax deductions to people who work out of their homes. Read on to find out what you might be eligible for if you work from home.
Tax Deductions for Self-Employed vs. Remote Workers
Most of the following deductions apply largely to the self-employed, also known as independent contractors. That’s because when you’re an employee of a company, your company foots the bill for 50% of things like Social Security and Medicare taxes, and withholds the other 50% from your paycheck to pay the rest.
But when you’re self-employed, you’re responsible for both halves — something too many independent contractors learn by surprise when April rolls around and they find out how much they owe in taxes. (Plus, the self-employment tax entry moved from Form 1040 to Schedule 1 for 2018.)
As a rule of thumb, you should set aside around one-third of your self-employment income for taxes.
To offset this additional expense, the IRS allows self-employed workers to deduct certain business-related costs, so long as they itemize each of these expenses on their returns. That means you’ll need to keep detailed records and receipts throughout the year.
What You Can Deduct if You’re Self-Employed
According to IRS guidelines, “To be deductible, a business expense must be both ordinary and necessary.” This includes the following:
1. Home Office
If you have a dedicated room or workspace in your home you use solely for business purposes, it counts as a “home office,” and you can deduct a portion of certain home expenses for it. It doesn’t need a fixed partition, like a wall or a door to close, but you do need to clearly identify it as a separate space (i.e., a dedicated corner of your kitchen).
So if your home is 1,200 square feet and your home office is 120 square feet, that means it makes up 10% of your home’s square footage, so you can deduct 10% of the following:
- Rent (NOT monthly mortgage payments).
- Utilities (heat, electricity, internet, landline).
- Mortgage interest.
- Homeowners insurance.
- Property taxes.
Remote workers, take note: You can only deduct a home office if your employer asks you to work from home “for the convenience of your employer.” If you’ve negotiated a few work-from-home days to accommodate your own schedule, this does not count.
2. Office Supplies
From staples to printer paper, office supplies are deductible. Just be careful with larger “supplies,” like furniture.
If it’s essential to your business (think: desk, desk chair, filing cabinet), you can probably deduct it. If it’s not (think: picture frames and a second, comfier chair for brainstorming in), you probably can’t.
You can also deduct any equipment you buy for your business, like computers, printers and accessories (headsets, webcams, etc.), as well as any repairs on these items. If you have a smartphone you use solely for business purposes, you can deduct the cost of the phone and monthly bill.
If your industry requires specialty equipment, like camera gear for photographers, that also qualifies.
Do you use a paid invoicing system to bill your freelance clients? You can deduct that. Graphic design software, PDF software, word processing software? You can deduct those, too. As long as you use them strictly for business, any software you purchase or pay for monthly qualifies.
5. Travel Costs
If you ever need to travel to visit a client or attend a conference, you can deduct your mileage or airfare. The same goes for any lodging, parking fees and other travel-related expenses you incur on your own dime.
Note, however, that if you’re an employee, you can no longer deduct un-reimbursed employee expenses for business-related meals, entertainment and travel, as a result of the 2018 Tax Cuts and Jobs Act.
6. Meals and Entertainment
Be careful with this category, as it can be all too tempting to write off business meetings that aren’t strictly business.
Coffee meeting with a new client to discuss strategy? Deductible.
Five-course dinner with friends where you spend 15 minutes talking business? Not so much.
As a rule, expect the IRS to limit your deductions to 50% of business-related “entertainment” costs, so keep things modest. For additional guidance, check out the 2018 update from the IRS.
7. Training and Education
You can deduct professional education necessary to run or grow your business, so go ahead and sign up for that course or webinar you’ve been wanting to take.
8. Marketing and Advertising
If you attend a trade show, send out flyers or buy a box of business cards, this counts as marketing, and you can deduct it. Same goes for any fees in connection with a personal website that advertises your services — hosting fees, WordPress theme purchases, etc.
9. Professional Services
When you hire someone to help you with your business, it’s deductible. So keep track of those invoices from the IT pro who debugged your website, the attorney who reviewed a tricky contract and the CPA who put together your tax returns.
10. Health Insurance
You can deduct 100% of your health insurance premiums for yourself and any covered spouse and dependents, if you meet the following criteria:
- You’re self-employed.
- Your business is claiming a profit for the tax year.
- You (and your spouse and dependents) were not eligible for coverage from an employer or under your spouse’s plan during the months you’re claiming.
Throughout the year, make note of any other expenses that the IRS might consider necessary in the normal course of business. This could include holiday gifts for your best clients (within reason), banking fees, shipping