Taxing Issues You Should Know when You Work from Home
Running your business from home can have a dramatic impact on tax. When deciding to work at home there are several tax related factors to consider. You should have a good understanding of these points in order to avoid being overwhelmed with tax problems at the last minute.
One of the first things to consider are the laws regarding state taxes. These laws can vary significantly from state to state so it is important to contact your state’s tax office to learn about the policies concerning calculating and collecting income taxes, sales taxes, and deductions.
Next, you should find out about the federal tax laws that apply to your work at home venture. There are a few places to look for information on federal tax issues. Your primary source of information should be with the IRS. They have a comprehensive website, as well as a toll free number available to help you with your questions. In addition, the IRS has identified a few guidelines that may help clarify your federal tax responsibilities if you work at home and are self employed The Small Business Association, Nolo Press, and The Social Security Administration may also be great resources to find out about the laws governing federal taxes and how they apply to your home business.
Also, keep in mind that there is a self employment tax that will be applied to your at home business. This tax is often referred to as the SE tax and is basically a social security and Medicare tax applied to people who work for themselves. The SE tax is comparable to the tax that is withheld from a traditional employee’s wages or the amount that is contributed by their employers.
You are required to pay SE taxes if it is determined that your home operation is a business rather than a hobby. Determining whether or not the primary purpose of your activities is to generate a profit makes this distinction. In addition, you do to have to have any employees to be considered responsible for this tax, and your net earnings only have to be $400 or more. Furthermore, the SE tax must be paid even if you are already receiving social security benefits.
Not all tax issues surrounding your home business involve you dishing out money. Self-employment also entitles you to some tax breaks. For example, individuals that have a home office can deduct the costs for maintaining and operating that portion of your home. This may even include a portion of your mortgage, rent, utilities, security system, and much more. You may only qualify for this type of write off if your home office is dedicated to your business exclusively. In addition, your home office has to be your primary location for conducting business.
In addition to your home office deductions, you can also deduct the normal operating costs for conducting business, just like any other business would. These deductions can include office supplies, auto expenses, travel expenses, computers, and much more depending on the nature of your business. These tax breaks not only apply to self employed individuals working from home, but can also be used by employees with home offices as well. This means you do not have to be the owner of the business to take advantage of these deductions; employees that work from their homes can take these same deductions.
Running your own business from home brings up several tax issues. If you are not sure what your tax responsibilities will be, or have questions concerning calculating or collecting these taxes you should consult with an accountant.