When it comes to doing taxes as a contractor, you want every opportunity to get the most deductions as possible. If you are working out of a home office, you are entitled to many tax deductions that will help you as you prepare your taxes for the next year.
Your home office must be exclusive to your business and should be a room that is dedicated just for this use. It can be your garage or an extra bedroom that you have converted into an office as long as it is the primary place that you conduct business.
Knowing how much space is dedicated to your home office is important as well. If you know the dimensions of the room or the percentage of space that it takes up in your home, you will be able to use this to calculate the other portions of your home office deductions. If your home office is 25 percent of your home, for example, use this figure when estimating the other portions of your expenses as a contractor with a home office.
Now that you know what percentage of your home is dedicated to your home office, you can begin to figure the rest of your deductions for your taxes. Let’s look at what else can be expensed.
Mortgage
This is a big one as this will give you a good portion to expense every year. You can figure that the percentage you determined on the size of your home office as a portion of your mortgage. You can think of it as if you were paying rent for a physical office location, which essentially you are as part of your home. If your home office is 25 percent of your home, deduct 25 percent of your mortgage each month as part of your deductions.
Property Taxes
Income tax deductions also take into account property taxes you are paying for your home where your home office is located. You will again use a percentage of the property taxes as your deduction each month that will become a part of your monthly expenses.
Insurance
If you rented an office, you would no doubt have insurance to contend with as a monthly expense. Your home office is no different as your homeowner’s insurance is used to protect the premises. A portion of your home insurance is deductible on your taxes and you should use the same percentage you are claiming for your mortgage and property taxes.
Utilities
Think about all the utilities that are needed to run your home office. You may need electricity or water and your home utilities bill is deductible on your taxes. This should be a portion of your bill that you are using for your business in your home office.
Internet
If you are using the internet for your business this is deductible as well. You may need the internet to source contractor products and supplies or to do research. This falls under business expenses and can be deducted as part of your yearly taxes.
Phone
Because you need to stay in touch with your clients and crew, a phone is vital to your business. Whether it is a cell phone that you do your primary business calling from or a landline, these can be expensed as deductions on your taxes and should be taken advantage of.
Repairs
If there is something that needs to be done in your home office for repairs, it counts as a home business expense. Just like if you were renting and office and something would need to be repaired you would be able to deduct this from your taxes. This can be items such as a window replacement or drywall repair or really anything that happens in the confines of your home office and requires repairs.
Depreciation
The equipment that you are using in your home office qualifies for depreciation. This is the equipment such as computers and fax machines that lose value over time and needs to be replaced. You can deduct the entire value of the equipment in the first year of purchase or spread it out over the course of its life. Either way, will give you a deduction on your taxes.
Supplies
Anything that you need in your home office to operate constitutes as a business expense. This can be the simplest things as pens and paper to more unique items that are specific to your business as a contractor. If you are using it for your business, it counts toward a deduction.
It is imperative to keep good recordkeeping of all your expenses so that come tax time, you are prepared to have the proper deductions on your taxes. Think about everything you spend money on for your business as part of your home office and it most likely is an expense that can be deducted. Be sure to take advantage of having a home office and all the benefits you get at tax time. This will make operating your contracting business more effective and efficient.
