Taxes are an unfortunate part of life. And before I continue with this post, let me also say: I could have called this tax tips for bloggers. I was almost going to but I want to start getting into the mindset of being a work at home mom. Not that blogging isn’t the bread and butter of what I do (because it is) but because I plan on expanding beyond blogging in 2016. So, with that out of the way, let’s get back to that dreaded topic of taxes. We all know that we have to pay them, but how can those who are self employed and work at home, make the most out of taxes? Today I want to share some tax tips for work at home moms (that can also be applied to bloggers, and similar work at home entrepreneurs.)
Just the thought of taxes can scare people out of their minds. You have to keep all your records and documents in order to be able to file easier at the end of the year. Home business owners have their own set of allowable deductions that differ from other businesses. You have a chance to save a lot of money by knowing how to take advantage of you home business situation.
Tax Tips for Work at Home Moms (and bloggers, too!)
What is the home office deduction?
The more people work at home, the most often they try to claim a home office deduction on their income taxes. The home office deduction allows taxpayers who work at home and maintain a home office to get a significant reduction in income taxes, as long as certain standards are met.
What are the criteria for the deduction?
There are three primary criteria you must meet to take the home office deduction. For someone operating a work at home business, the first one is the hardest to meet.
The first criteria that the IRS uses to determine if you are eligible for the home office deduction is the question of how the space is used. To qualify, you must use your home office exclusively for your home business. If you use a corner of the family room for the home office, this can be hard to prove.
When the IRS talks about exclusive use, it means exclusive and regular use. That is, the only activities that should take place in the space should be those related to your business. You should only conduct work activities there. If the kids use the computer for gaming, or you pay bills at your desk, or print family menus there, it doesn’t qualify.
As well, the home office should be used regularly for your home business. Let’s say you primarily work on a laptop in your car but your home office is your home base. But if you rarely actually use that home office, you likely won’t be able to claim it on your taxes as a home office deduction.
If you run a daycare from your home, there is an exception given to the exclusive use criteria because while the home is used regularly for business, it’s not used exclusively for business.
The second criteria concerns why the home office is used as a home office. That is, if you work from home at your own business, you will meet this criterion. Most home businesses will meet this particular point, but if you work for an employer and you sometimes work at home, it can be hard to prove this particular requirement, especially if the employer also provides an office or space for you to work away from your home.
The third criterion applies to people who have more than one home business. If you have more than one home business, every single one of them must qualify for the home office deduction in order for you to take the deduction. That is, if one of the businesses does not qualify, but the others do, you can’t take the home office deduction on any of them.
What can you take?
When you qualify for the home office deduction, you can get tax deductions on the portion of your house that is used as a home office; for example, if you use 200 square feet for your home office, and your home is 1,600 square feet, you can get credits for 8 percent of the utilities, property taxes and other expenses related to your home.
In addition to the home office deduction, you can still take regular business deductions, like those for supplies, phone lines, internet service and the like.
How to make home office deductible
If you work at home full time, it makes sense to take some time figuring out how to create an environment that lends itself to taking that home office deduction. If your desk is in the family room, but you use it exclusively for the business, consider partitioning off the part of the room that is just for your business. That way, you create a home office that is used exclusively and regularly for your home office.
In addition, keep all receipts for computer purchases, furniture purchases and any other purchases that are used for your business. All of these are deductible in addition to the home office.
There are auto/vehicle deductions that can help with mileage, gas, insurance, and/or other related expenses. You can write off your business cards and stationary, plus any business meals and entertainment. All business traveling expenses, education, and even the interest on your business credit card can be counted in your favor.
Deductions that you will want to use on your 1040 form are:
* Half of your self-employment tax amount, which can offer you a huge savings.
* As much as 100% of your medical insurance costs for you and your family.
If you make more than $600 per year in self-employment you must file your taxes. You may qualify for the C-EZ form if you have had a bad year or just got started. Your total business expenses will have to be less than $5000 for that year; you have no inventory, or have to file a 4562 form (depreciation and amortization form). Make sure first and foremost that your expenses are less than $5000 and that you have taken all the deductions you are entitled to.
Should You Hire a Tax Professional?
A large decision is who will be doing your taxes. You need to decide if you plan to do them yourself or if you want someone else to do them for you. There are several advantages in using a tax professional. They can save you much time and unneeded frustration. They can spot deductions you might miss or not know about. It also saves you from being responsible for any errors that were made in the preparation, which could end up saving you thousands.
To Sum It Up:
No matter how you decide to prepare your taxes be sure to claim all possible deductions to save you money in the long run. A business has many breaks for the taxpayer for a reason and you should make sure you know what you qualify for and how to save.
Have you found these tax tips for work at home moms to be useful? If so, please consider sharing with your friends!