Working from home comes with certain benefits, but when it comes to paying taxes, it’s nothing but a huge headache. Many people go into freelancing because they’ll think that they’ll be exempt of paying taxes, which is obviously not true. Anyway, they learn that they do have to file taxes the hard way.
This is not to say that only freelancers work from home – there are people who work from home as remote employees and thus are on a payroll. If you are working from home, you should be familiar with the following 5 aspects pertaining to taxes.
Those who work from home and are on a payroll (therefore not self-employed) won’t need to lose sleep over how they should pay their taxes, because their employers will take care of them.
Freelancers, however, will have to pay quarterly taxes and because freelancing doesn’t come as a package deal with a steady monthly income, figuring out how much you have to pay in taxes can make you go insane.
You should not go on this road alone – get a good accountant that’ll help you determine how much you have to pay and the things you can deduct from the taxes.
This applies to both freelancers and payroll remote workers and allows them to deduct utilities, various insurances and even rent. In order for this to happen, they need to have a clean-cut home office that is not used for other purposes besides working and meeting with clients (where possible).
If you work from home because you’ve finally persuaded your boss to let you do so or you’ve moved somewhere else to be with your loved one, you won’t be getting a deduction. You’ll get it only if the employer asked you to work from a home office.
This is also known as “Telecommuting Tax Penalty”. Let’s suppose that you work for an employer that’s in a different state. In this case, you might be taxed by both the state you live in and by the state your employer lives in.
Many states won’t tax you if you cannot work in the state of your employer for a good reason (the “convenience of the employer”). If you choose not to move there, you’ll be taxed twice.
Paper clips, paper for your printer and basically everything that isn’t covered by your employer is tax-deductible. However, the process is extremely strenuous, so you’re better off if your employer pays all your business-related expenses.
If you work remotely for an employer, filing taxes will be as easy as 1,2,3. If you’re a freelancer, you should hire a good tax professional and prepare for an audit – get details on how to do that effectively here.
Everyone has to pay taxes, but for some it is more burdensome than for the others. Make sure you understand how much you have to pay and how much you can deduct.