One in an occasional series of articles about your taxes.
Let’s take a look at some of the top deductions for the self-employed individual working from home:
Home office deduction — If your office is at home, then that space can be deducted. That room or space in your home must be used exclusively for your office and can include the space where you meet with clients, customers or patients as you go about your business. The amount you can deduct depends mostly on the percentage of your home used for business according to the IRS. Special rules for qualified daycare providers and for people who store business inventory or product samples apply.
Your deductible expenses must take into consideration your home and the area used as your office. For example, if you have a 2,000 square foot home and your office is 10×15 or 150 square feet, then 7.5 percent of your indirect expenses can be deducted. Repairs, maintenance, cleaning expenses and other costs done in the space you use for your office can be deducted too.
Driving deductions — Business miles traveled can be deducted as well. For 2012, the IRS allows you to deduct 55.5 cents per mile for business miles driven. You aren’t restricted to using the standard mileage rates, however. Some taxpayers prefer to add up the actual costs of using their vehicle, an option that could prove advantageous for the driver who uses his personal vehicle for business use frequently.
Please note, that the IRS disallows the business standard mileage rate for any vehicle once the depreciation method under the Modified Accelerated Cost Recovery System has been realized or after claiming a Section 179 deduction for that vehicle.
Your retirement plan — All workers, not just the self-employed working from home, can set up a retirement plan. For self-employed individuals, that plan can help defer and shelter taxes, reducing taxes accordingly.
The IRS features several retirement plans for self-employed people including SIMPLE IRA, SEP, 401(k) and other defined contribution plans including profit-sharing and money purchase plan.
As always, consult with a financial advisor if you do not understand what deductions are available to you. Having a home office can save you money and reduce you overall tax burden.
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