Self Employed? Work at Home? Use These Top Tax Tips

Learn how to legally minimize and manage your tax bite! A little bit of planning can go a long way!


Nobody likes tax season. At-home workers, especially freelancers and home business-people, have unusual problems to overcome. There's no employer to supply you with a W-2 form with the figures all worked out. You have to do the heavy lifting yourself, and if you make a mistake, the price can be high. There's no substitute for professional help, but knowing some of the ways that at-home workers can legally and legitimately cut their tax bill is the first step toward a pain-free filing season.

General Tax Tips for At-Home Workers

Whether you receive a W-2 from an employer or you're filing as self-employed, working from home provides you with the opportunity to take some write-offs, you would otherwise not be able to enjoy. However, these do require more time for you and some that you may have to consider mostly for the upcoming year.

Investigate a home office deduction - If you work from home, the IRS will allow you to write off a certain square footage of your home as a home office.[1] A home office cannot exceed 300 square feet of your home and is calculated based on which portion of your home is used exclusively for business on a regular basis. For example, if you set up shop in a home office during the day, but use it in the evening to play with Legos with your young children, this would still be considered a home office. The deduction cannot exceed the gross income of the business use of your home. For instance, if you make $50,000 a year in income while working from home, the write-off would not be able to exceed that (which is unlikely to be the case in this example, nonetheless).

Keep track of mileage traveled for business - You can deduct a certain portion of these miles.[2] As of 2014, at-home workers, and all workers for that matter can write off 57.5 cents per mile. Make sure to log this information precisely in case the IRS chooses you for an audit.

Keep precise records for business expenses by keeping all receipts - The IRS also recommends keeping canceled checks, invoices, receipt books, deposit information (cash included), credit card statements, account statements and any other type of document that tracks your cash flow.[3]

If you're self-employed, consider the pay-as-you-go system - The IRS requires any self-employed individuals to declare 15% of their income for the self-employed taxes, which compensates for the lack of employer taxes.[4] The self-employment rate is currently 15.3%, which covers Medicare (1.45%), Social Security (6.2%) and wages (7.65%).

The pay-as-you-go system allows self-employed workers to pay 25% of this required amount, spread out over the course of the year and paid quarterly. This prepayment is an estimation, making it sometimes difficult to predict exactly. Note: it is extremely important that you do not underpay! As your income is variable, it can be sometimes difficult to determine how much you should be paying at each point. If you're unsure, it's best to pay more than less, as you can recoup the excess when you file in April. You could avoid a penalty if some disaster occurred during the year that prevents this payment. Otherwise, you may incur a penalty.

Confused? Turn to a professional - Find professional help before you start trying to file for your deductions. The IRS has a handy guide on what to look for when seeking out a tax preparer.[5] There are plenty of independent agents, although at times it may be better to consider using a more well-known tax preparation company, even if it costs you a little bit more. For the most part, look for someone who is registered and licensed, either with the IRS, an official legal bar, or through a CPA examination.

How to Stay Ahead of Tax Season Throughout the Year

If you work from home, you need to maintain proper practices throughout the year, which will help get ready for tax season and make the preparation process extremely smooth and efficient.

Hire a teenaged child or family member to do basic record keeping. Chances are, you just don't have the time to do the basic record-keeping that makes tax season easier to manage. Consider hiring a teenaged family member to do this work throughout the year. Make a schedule for inputting information into timesheets. The salary you pay your child will be deductible as a business expense, and your child will have no tax exposure on income below $6000/year. Also, consider purchasing a device that scans and automatically organizes your important documents for you. The NeatReceipts scanner is a popular example of this, although there are others.

Set calendar notifications for submitting payments. If work from home and you're self-employed, make sure you know exactly when you need to make the estimated payments. A helpful tip here is to set your payment date at least a week before the due date. This way, you're not rushing on the due date to make your estimated payment. For 2018, take note of the following calendar dates:

Payment Period Due Date
1st Payment April 17, 2018
2nd Payment June 15, 2018
3rd Payment September 17, 2018
4th Payment January 15, 2019

Have a credit card you use only for business purposes. Use this credit card for all expenses that can be deducted, including travel and food purchases made as a consequence of business. This method makes it easier on you, as you won't have to sift through a pile of receipts. Also, ensure that you are paying this credit card balance at the end of every month to avoid incurring any fees.

Maintain a daily work schedule and record daily income. These are ways to help you keep track of everything you're doing that day, how much each task is worth, and will help you break down your weekly income on a day-to-day basis.

Don't ignore your retirement savings. This is especially important for self-employed at-home workers.[6] It's easy to get lost in the day-to-day and the quarterly and yearly tax necessities while ignoring your future retirement plans. For at-home workers, retirement may be in your hands alone. Invest in a few good retirement plans. In some cases, you can defer income taxes to make retirement payments, allowing you to lower your bill.

Working through tax laws can be almost as depressing as sending in the payments. It's a complicated system, and few people other than professionals ever really master it. Getting familiar with the basics and planning those basics into your routine can still help you get control of your financial life, and that's a goal that should be important to all of us!