4 Tips For Writing Off Home Office Expenses For Independent Contractors
Dan Levenson September 01, 2015
If you work as an independent contractor, you’re probably all-too-familiar with just how stressful things can be around tax time. You’re responsible for paying your own taxes rather than having them automatically deducted from your paycheck. Not to mention, independent contractors and self-employed workers also get hit with additional taxes, such as a 15.3% self-employment tax for Medicare and Social Security.
Of course, we’re not accountants and will always recommend that you trust the advice of a professional, but there are some basic tips for writing off home office expenses that can help you keep more of your money this tax year.
Take Advantage of the Home Office Deduction
The biggest deduction you may be entitled to if you’re working as an independent contractor is the home office deduction. This deduction only applies if you own your residence and have a designated room in the house that you use primarily as an office.
Be careful here. You can’t claim a home office deduction for your living room just because you have your computer desk set up in the corner; the space needs to be completely dedicated to your work.
If you qualify, you can deduct the portion of your mortgage that goes towards the square footage of your home office, which can save you a pretty penny when it comes to paying your taxes. Just be sure that you carefully document and calculate your deduction, as it’s not uncommon for those who claim this deduction to be audited.
Deduct Costs of Necessary Equipment/Supplies
Even if you aren’t eligible for a home office deduction, there are plenty of other expenses you can write off when you work as an independent contractor.
For example, if you have to purchase a new laptop or computer to conduct your work, this can be written off come tax time. The same applies to portions of your home Internet and phone bills used for work purposes, along with any office supplies (paper, ink for your printer, etc.) that you need to buy to do your job.
Be sure to track any work-related travel that you do in your own car. Write down the dates and times of your travel, along with your car’s odometer readings before and after the trip.
Keep Receipts and Documentation Organized
At the end of the year, it might be tempting to simply estimate how much you spent on your home office throughout the year, but it’s important that you actually keep track of this information throughout the year. This means having a dedicated folder or file where you keep all of your work-related receipts, along with a spreadsheet file where you track your annual totals.
Yes, it will take some time on your part to keep this information organized, but it will also help save you time and stress when it comes time to file your taxes. Plus, in the unlikely event that you do get audited, you’ll have all the documentation you need.
Write Off Insurance and Retirement Expenses
If you’re paying for your own insurance and/or contributing to your own retirement fund, understand that this can help you come tax time as well.
Specifically, any funds you’ve contributed to your retirement account should be tax-free until you begin drawing on your account. Furthermore, any medical expenses, such as insurance premiums, are 100% tax-deductible as well.
As you can see, there are many tax breaks that you can enjoy when you’re working as an independent contractor. And while taking advantage of these deductions and write-offs does take some research and careful tracking on your part, the results will be worth it when you’re able to keep more of your hard-earned money in your pocket at the end of the year.