Accounting Tips for Self-Employed Billers and Coders with Home Offices
Did the word “deduction!” jump into your mind the minute you thought about opening a home office? If so, you are thinking wisely, because a home office provides many great opportunities to deduct business expenses from your taxes.
But be careful. The IRS has some requirements – and traps – waiting for people who break the rules about what can be deducted. So be sure to follow these steps to avoid trouble.
Read what the IRS has to say. Download Business Use of Your Home, a guide that is published by the Internal Revenue Service. It spells out which expenses are deductible, how much of your home you can deduct as a home office, and more. You’ll also find some unpleasant surprises. Example: If you sell your home for a profit after you’ve taking deductions for a home office in it, you could end up paying capital gains tax on your business. (See page 14 of Business Use of Your Home.)
Talk over your plans with your accountant or tax preparer. Your strategy for taking home-office deductions will vary according to whether you own your home or rent, the physical layout of your home, the amount of time you intend to stay in your current residence, and other factors.
Keep complete records of all deductible expenses. A file cabinet is your best friend in this area. Set up files for office expenses, travel expenses, and all other categories. Also: Print out and file records of Internet purchases, invoices and other electronic documents that you will need to complete your taxes. Preparing your taxes will be much easier if you have all your records in one place.
If you have multiple clients, keep careful records for each of them. You will need to track the income for each of them – as well as expenses that apply uniquely to them – separately. Your accountant or tax preparer can help you set up filing categories to keep everything straight.
Consider using an accounting program to track all expenses and income. Intuit Quickbooks, a program that is available through computer retailers and via download, is excellent. But remember, you have to be diligent about entering all your data into it.
If you bill several clients by the hour, use software to track your hours and income. Intuit Quickbooks Pro and Premier editions can track billable hours and expenses for multiple clients – plus, they are excellent all-around accounting programs for your business. Also: Some home workers with multiple clients recommend project-management software called Tenrox Timesheet.
And one more consideration . . .
If you are setting up a home-based business, this could be a great time to establish a self-employed qualified retirement plan (SEP IRA) or other retirement plan. You might be able to contribute up to $2,000 a year tax-free. Consult your accountant or tax preparer to learn whether such plans are a good idea for you. Now that you are self-employed as a biller coder with a business of your own, why not enjoy all the benefits?
