I have been asked this question often over the years that I have worked at home. Of course the answer is going to vary depending on your personal circumstances and exactly what type of work you are doing at home. Your CPA can give you the best advice on which is the best for your circumstances.
Lets start with your work space: If you are just working from home with a home office, you can write off everything in that office on your income taxes. You can take a one time deduction on your equipment or you can pro-rate it over a number of years.
You can also deduct all the costs of heating, air conditioning, any maintenance and furnishing of this space (ie: new flooring, locks on the doors, business furnishings) but be sure that you do not have this area also set up as a spare bedroom with a bed in it or you will not be able to declare it as an office.In my particular case, I have taken one of the bedrooms in my home and converted it into an office. There is no question that it is strictly used as an office. Desk, bookcases, file cabinets, separate phone line, a shredder and locks on the door.
Perhaps you are running a daycare out of your home. All the rooms that you use for the children in the daycare facility can be written off as business space. I know someone who has not only a large playroom but who also utilizes their livingroom and a bedroom for her daycare. The diningroom where they all eat their breakfasts and lunches as well as her kitchen for meal preparation and one separate bathroom away from her family's bathroom are all able to be declared as business expenses. In her backyard are outside play equipment for that specific age group she cares for, as well as inside toys which must be replaced from time to time.
I know a gentleman who is a draftsman who has a home office and must have a drafting table set up as well as a separate phone line to conduct business.
Some people will require a "land-line" while others can just utilize a cell phone for their businesses. My advice is to not mix your business with your personal calls on the same phone line, in case you might be questioned at tax time.
Eating Out: this is a biggie! By working at home you save a lot of money by not eating out all the time. When you figure approximately $4 just to eat at a fast food place daily that is $20 a week or $100 per month. Many people tack on another $2 easily for a coffee to go in the morning and a soft drink for the drive home. That is an additional $10 per week or $40 per month (figuring 4 weeks in month) So now we have $140 X 12 which is $1680 per year! Adds up fast doesn't it.
Child Care Services: If you need to have someone watch just one child you are looking at anywhere between $150-350 a week easily depending on where you live. If you have more than one child, some daycare providers will give you a discount for more than one child, but if you have one still in diapers or in the process of being potty trained (that they have to train) you are looking at more. So lets just say $225 a week for one child for the sake of argument. Times that by 4 weeks and you have $900 a month just for childcare.Now figure that times 12 months and you have $10,800 a year.
Wardrobe:This can also be a costly item, especially if you are new to the workforce or reentering the workforce after being out awhile. You will be needing an appropriate work wardrobe. The most practical will be to get items that can be mixed and matched with one another and that can be washed in the washing machine and dried in the dryer with minimal or no ironing required. So lets figure things on the low side, a couple pairs of nice slacks and maybe a couple skirts, several nice blouses, a sweater and a blazer jacket. A nice coat, 2 pr of shoes (1 heels, 1 flats) a nice purse. I am going to be conservative, really conservative and say $500 for everything. Then add in $5.50 a week for the laundry and upkeep on these items and we'll prorate the cost at $ 63.67 per month for your wardrobe costs. Now this doesn't take into consideration adding on to your wardrobe or replacement costs of any items, this is just initial outlay. You will be spending approximately $764.04 a year.
Gasoline: Figures show that the average person drives 20-25 miles to work every day one way. I am going to use what we pay now in Oklahoma $2.47 per gallon and 24mpg as an average and 24 miles one way.... so a gallon of gas to get to work and another to get home. that's 2 gallons per day $4.94 X 5 days equals $24.70 per week x 4 weeks $98.80 a month for a total of $1185.60 for the year.
We still haven't taken into consideration car upkeep such as oil changes, tire replacement, etc, at 48 miles per day, you will be putting approximately 11,520 on your car each year which is going to mean you are going to do at least 3 oil changes on your car and more likely 4 in a year if you change your oil every 3000 miles.An oil change runs $30X 3 that's $90 a year, plus at least one set of tires $500 most likely or more so lets just round that to $600 a year
Beauty Shop or Barber Shop:Fellas I know you guys get to the barbershop at least once a month to get your ears lowered! Not sure what it costs you nowadays but my guess is probably at least $15 if you leave at least a little tip! The gals probably spend at least $20 when they go and probably only go every 3-6 months for a haircut. So lets figure the guys spend $180 per year and lets figure the gals get a haircut every 4 months and theirs would run $60 per year. And for our work at home scenario we will figure it is the lady of the house that will be working at home.
So here goes
Cost of meals $ 1,680.00
Child Care (1 child) $10,800.00
Wardrobe $ 740.00
Gasoline *2 gals day $ 1,865.60
Car Upkeep $ 600.00
Beauty Shop $ 60.00
Total $15,745.60 Minimal Cost for you to work
And I know that I haven't included everything!
So now you figure if you have a $20,000 year job and they are going to be holding out 23% of that for your taxes and FICA withholding ($4600) That leaves you with $15,400 and you are paying $345.00 for the privilege of working!
Kinda scary when you see it all broken down in black and white isn't it?
I think there is something wrong here don't you? So start thinking of ways that you can work at home, deduct some of your expenses of working at home from your tax base, and keeping more in your pocket! Even if you earn $20K working at home and your withholding goes up to 28% because you are self employed, $5600 withheld giving you $14,400 left....... you now have cut out all the expense of above that you had to spend just for the privilege of working!
Now I want you to do your own real life calculations. Figure out all the things that you would need to spend money on in order for you to enter or reenter the work force. How much you would spend on lunches, that cup of coffee on your way to work, the soda on the way home, the additional maintenance on your vehicle and the gas to and from work and the cost of putting your child/children into daycare. You tell me if it is truly profitable for you to work outside the home.
Why not share with us what you come up with, I know I would be interested in hearing from you!
No comments:
Post a Comment