Running a home based business like transcription can be a great career. The perks that come with working from home, such as setting your own working hours and being near your kids, cannot be matched with the traditional 9 to 5 career. However, you have to treat transcription as a real business and this means paying the necessary taxes.
The good thing about working from home is that you have many opportunities to keep your tax returns down. Below are 7 tax tips that will help you have a smooth time during tax season.
i) Understand Your Deductible
You can get tax deductions for office expenses. However, the home office should be a place that is exclusively used for transcription activities. If you are working on your kitchen table, you won’t be able to deduct it. However, if you have set aside a portion of a room as your working area, you can deduct some housing costs.
Keep in mind that the home office deduction is a big red flag. When you claim the deduction, the IRS is more likely to audit your business. However, if you are legitimately entitled to the deduction, you can significantly reduce your annual expenses by taking advantage of it.
ii) Utilities Deduction
If you are taking a home office deduction, you can also deduct some part of the utility bills that you use for transcription. For example, you can deduct your electricity, heating and internet bill.
However, keep in mind that these utilities are also used at home for non-work purposes. For this reason, you should deduct the utilities based on a percentage of the square footage that serves as your office space.
iii) Deduct Office Supplies
Transcription work is mostly done on the computer. However, this does not mean that your home office has no other expenses that you can deduct. As you run the business, you may need to buy paper clips, postage, ink toners, papers and other supplies. All these supplies are deductible if you are using them for business. For example, if you have purchased a new set of headphones, computer or iPad for your business, you can deduct them.
However, if you only have one computer that you use for both transcription and personal business, your deductible should be based on how much you use the equipment for the business.
iv) Office Upgrades
Office upgrades are also allowed as deductions. If you have been thinking about getting a new desk lamp, bookcase, office chair, desk or other office furniture, note them down for deductions. You can claim a deduction in two ways: at once in the year you purchase the item or gradually over the life of the item.
Some things can be difficult to fit in the deductible range. For example, if you have bought a new painting, trying to expense it as a deductible can be quite a stretch since you are not likely to bring your transcription clients to the office.
v) Save Money on Business Travel
If you are working as an independent transcriptionist, you may need to attend a conference or business meeting to network with potential clients. You may also travel to meet a client, and may not be reimbursed for the costs. Did you know that these business expenses are deductible? Here are some areas where you can claim deductions for your business trip:
- You can deduct 50% of the cost of your meals during business days
- You can deduct tips and lodging fees
- You can deduct any transportation costs (rental car, airport parking, taxis, bus fare or plane tickets)
Also, if you have to do business out of town on Friday and Monday, you can deduct meals and lodging costs from over the weekend!
vi) Mileage Deductions
When running a transcription business from home, you cannot deduct any daily commute. The same also applies to any trips you take to the local coffee shop. However, if you need to meet a client out of the house to perform a job, perhaps transcribing at the client’s office, you can deduct this trip.
Other mileage deductions you qualify for include trips to conduct research, buying business supplies or any other kinds of activities for your job. The deductions include a standard mileage deduction, tools, and parking.
vii) Reimbursement for Lunches!
From time to time, you may have to take clients out for a lunch date. This is how big transcription deals are made. You can deduct the meals you pay for clients, but only 50% of the bill.
However, don’t abuse this privilege. The IRS is on the lookout for home business owners claiming extravagant deductions. You will raise a red flag if you claim $300 for lunch with a client. It’s advisable to keep receipts for any expense you plan to claim deductions for. As a good practice, jot down the client’s name, the purpose of the lunch and the date just to be sure in case you need to reference them in the future.
The above are seven things you should know about deductibles that you can take advantage of when running a home based transcription service.