Most freelancers are unaware of the expenses they can claim for their home office.
There are a number of homes office deductions that freelancers can claim on their income taxes. However, failing to claim the correct amount on your taxes can result expensive fee’s, high interest rates and frequent audits.
If you’re a freelancer and are unsure what items you can and can’t claim, continue on to the article below where items are explained in greater detail.
Entertainment
Freelancers are typically able to claim a portion of any entertainment and meal expenses that were used for a business-related cause. Given the many variations of entertainment, it’s best to have these expenses checked by a financial professional who will be able to confirm their validity.
To ensure you’re able to prove the amount claimed, owners will need to carefully document any invoices, receipts or accounts in the event that the government requests to see proof. Otherwise, owners may be at risk of a lengthy dispute to confirm their claims are correct.
Rent or Mortgage Payment
The majority of freelancers work out of a home office which is another expense that can be claimed on income tax for the year. This means that freelancers will be able to write off a portion of their total monthly rent or mortgage payment.
However, there are stipulations that must be followed to ensure you qualify for the deduction. Freelancers will only be able to qualify for a deduction if they have a specific and designated area in their home that’s used for work. This area cannot be used for other purposes and can only be claimed as a percentage of the total amount.
To prevent any errors in the amount claimed, it’s recommended that freelancers clarify how much qualifies by speaking with a trained financial professional who will be able to determine an exact amount.
Software Equipment
There are also a number of equipment expenses that freelancers are able to deduct from their income taxes. The most common type of equipment that is claimed is usually: software, technology, programs, membership fees and office supplies. However, for these expenses to be eligible they must be essential to maintain the business.
Meaning, the equipment that was purchased needs to have a reason for its use within the company. If it cannot be proved then freelancers are at risk of being reassessed by the government to determine an accurate amount.
Vehicle or Travel Costs
Although the majority of freelance workers are aware that they can write off a vehicle they use for it, most are unaware of what exactly can be claimed in a year given the fact that they work from a home office. The standard for most contractors is that they’ll be able to receive a tax deduction on the mileage that’s spent on getting them to clients and business meetings or wear and tear on the vehicle.
However, owners can write off the amount spend on: insurance, gas, maintenance work and repairs in a given year. This can quickly become confusing for contractors who will need to determine which of those expenses qualify. Therefore, to confirm exactly what can be claimed from your expenses its always recommended to seek the help of a financial professional to assess your accounts and verify the expenses.
As a freelancer, it’s vital to maintain records of your business expenses. Otherwise, freelancers that have poorly managed accounts may be at risk of costly fee’s, higher than expected interest rates and frequent audits. To prevent these repercussions from impacting your business consider speaking with a member of our team for a personalizes assessment.
Image: Unsplash
