The prospect of long term work-from-home life may be enticing to some and terrifying to others. Regardless of your feelings on the matter, 2020 is a year in which you’ll likely want to know how you can take advantage of certain tax deductions related to the new realities of work — particularly if you’re self-employed or an independent contractor.
Knowing the right tax deductions, and how to apply them on the most basic level, will create great benefit for you come tax time if you are careful with your record keeping. Below you’ll find four of the most visible deductions that could ultimately impact how much tax you owe for the year.
1. Regular deductible business expenses
If you’re self-employed, you also want to be sure you’re keeping meticulous records of any business expenses incurred throughout the year. This means keeping receipts, screenshots, and any other evidence that shows a pursuit of independent income.
This includes office supplies, work-from-home setup materials, insurance, and anything else directly related to your business operations. It’s also important to note that all of these expenses are applied against your independently earned income.
2. The home office deduction
For self-employed people who have worked at home this year, you can claim a home office deduction if you’ve used a portion of your home “regularly and exclusively, and as your principal place of business.” If you use the simplified method, you’ll be able to deduct $5 per square foot, up to 300 square feet, for a maximum deduction of $1,500.
You also have the option of using the “actual expenses” method, through which you’ll need to keep track of specific expenses related to your home office, and add a proportionate share of your overall home expenses to figure your true deduction. In most regular cases, the simplified method will be easier to calculate and simpler to use.
3. Mileage deductions
If you have a car or truck, you’ll be able to deduct expenses related to business travel (for example, visiting clients or traveling between clients). This doesn’t include commuting, because the IRS sees the relationship between your home and principal place of business as a choice. If you choose to live far from your workplace, you won’t receive any benefit come tax time…Read more>>