Working from home is a dream for many full-time employees. Meanwhile, that dream has become very real for at least 43% of the U.S. workforce, according to the latest Gallup poll on remote work.
In addition to that, there are many more who work from home as solopreneurs, small business owners and self-employed contractors. One thing shared by all who have made this brave transition is a deeper understanding of the old saying, “You don’t know what you’ve got ’til it’s gone.” Office-based workers enjoy free lighting, free electricity and free paper in the printers, to name a few unspoken benefits.
To make this a bit more equal, here are some of the most important IRS-sanctioned deductions for business use of the home that can make it all feel less taxing and more profitable.
1. A Portion of Rent or Mortgage Payments
Instead of itemizing each expense, remote workers can claim a simplified home office deduction that is $5 per sq. ft. up to 300 sq. ft. Be sure this office is used for business and nothing else. The standard method is to keep careful records and receipts of all deductions.
2. The Same Portion of Utilities
A percentage of home utilities, such as electricity, water and heating bills, can be deducted in the same proportion as the size of the home office.
3. The Same Portion of Homeowners Insurance Premiums
This applies only if the business qualifies for a home office deduction.
4. Mileage Expense
The self-employed can deduct 54 cents per mile for business travel in 2016. Employed remote workers can deduct the portion of this expense not paid by the employer.
5. Parking & Tolls
The price of parking and tolls are only covered for specific business trips to meet with clients or prospects.
6. A Second Phone Line
The IRS considers the first landline to be a home phone. A second line can be deducted if it is used exclusively for the business.
7. Healthcare Premiums
A self-employed worker can deduct the cost of healthcare premiums. Not all work-from-home employees are self-employed, so be sure to understand which category you fall into before assuming you can take this deduction.
8. Depreciation on Office Furniture
Essential business property, like a desk, a filing cabinet and safe, lose value as they are used. Figuring out the proper way to depreciate these assets can be complex, though. You may want to consult a tax professional for guidance.
9. Employee Compensation
If someone who is self-employed pays employees, their salaries can be deducted as business expenses.
10. Awards for Employees
This deduction includes achievement awards, bonuses for meeting goals and nominal gifts.
11. Employee Health Benefits
Health and life insurance plans for employees are fully deductible.
12. Education Benefits
Paying for employee education is a very popular benefit now and is fully deductible.
13. Business Insurance
Just like homeowners insurance, premiums are covered for some types of business insurance. The sticking point here is “ordinary and necessary” insurance, which is vague, so consulting with a tax professional can help make sure you’re taking the proper deduction.
14. Business Taxes
All local, state and federal taxes paid on behalf of the business can be deducted.
15. Interest on Loans
If the owner chose a business financing option to help fund the organization, the interest is deductible.
16. Retirement Contributions
Contributions to retirement accounts can be deducted for the business owner and any employees.
17. Cost of Goods Sold
If the business manufactures something or purchases items for resale, inventory should be assigned a value at the beginning and end of the tax year.
18. Business Startup Costs
Any funds applied directly to the process of getting the business off the ground can be deducted.
19. Barrier Removal Costs
If the public will come to the home office for business meetings, it must be accessible to the disabled and elderly. Those improvements are deductible up to $15,000/year.
20. Organizational Costs
When it is time to file for the creation of a corporation or a partnership, those filing fees can be deducted.
21. Business Assets
The full cost of essential equipment like computers, mobile devices, copiers and projectors, can be deductions if they are used 51% of the time or more. Otherwise, depreciation of these items can be deducted.
22. Business Improvements
Valuable business assets need to be maintained. The cost of home office repairs are included in this.
23. Capital Loss
The self-employed tend to have very unpredictable revenue streams. This deduction helps to smooth out that uncertainty. This complex transaction is called “tax loss harvesting.” Any losses on capital investments can be applied to reduce capital gains for other investments, even in the future.
It should be clear that the deductions available to self-employed business owners and contractors can be different from those available to employees who work remotely. Consult a tax professional and the IRS website for the final word on what is legally deductible and which grey areas should be avoided. There’s no reason to pay taxes on valid business expenses, but it always pays to play it safe in terms of avoiding a potential audit.
Getting a big tax bill at the end of the year that you can’t afford to pay can have a significant impact on your business if it results in a tax lien or levy. These can not only be costly, they can impact your personal and business credit scores, depending on how the lien is filed. You can check your business credit for free at Nav.
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This article was originally written on February 27, 2017 and updated on March 6, 2017.
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