Evidenced by the rise of the mommy blogger, there are more women working at home than ever before. Working from home has its perks — you can set your own hours, name your own price and essentially live life as the master of your domain. But come tax time, it can also leave you with a mountain of paperwork to deal with.
In 2014, Pew Research Center reported some interesting findings. After a multi-decade-long slump, being a stay-at-home mom was again on the rise. Almost a third of women stayed at home with their kids in 2012 compared to 1 in 5 women in 1999. Add to that the fact that telecommuting work in the U.S. rose to 37 percent of workers in 2015, according to the latest Gallup poll, and you can see how the twain shall meet.
If you are a mother who wants to squeeze in a little more time with your kids without sacrificing a paycheck (as so many of us do), working at home makes perfect sense. But as Spider-Man’s uncle once said, “With great power comes great responsibility.” Meaning, working at home affords working moms a wonderful freedom, but it can also lead to a major headache as you try to get the hang of submitting your invoices, balancing your books and taking all your eligible tax credits.
For those who are new to the work-at-home mom workforce, welcome — we’re glad you’re here. We’re also going to make the transition easy on you by showing you the ropes, starting with some of the most common work-at-home tax deductions that are easy to miss. According to the experts, these work-at-home tax breaks could save you money.
1. Home office
This one’s a no-brainer, and it’s often the first deduction moms consider when working from home — writing off your office space, no matter how large or small it may be. Dr. Joe Webb and Richard Romano, co-authors of The Home Office That Works! 2016 Edition, say, “If work-at-home moms help with the family business in any capacity — from management to simply running errands or other logistical tasks — they might be eligible for the home office deduction. According to the IRS, only about 13 percent of eligible taxpayers take advantage of it, and it can be a significant tax savings.”
Mark Steber, chief tax officer at Jackson Hewitt tax service, qualifies, “The area must be used exclusively for the business, no bed for guests or TV for the kids. You can now claim your portion of the utilities, insurance, taxes and mortgage interest or rent, upkeep to whole home and the full cost of any upkeep to the office area only. You can even claim depreciation if you own the home.”
2. Child care
If you find it nearly impossible to get any work done while your kids are at home, you’re in good company. Plenty of work-at-home moms use part-time or full-time day care and deduct the child care expenses tax credit. Steber reminds us, “Are you paying for day care while you are working from home? If you are, don’t forget to claim the credit. If your day care provider comes to your home, you may have to get an employer ID number and pay the employer share of Medicare and Social Security taxes, as well as withholding the employee’s share.”
Running your kids around and running errands for your business can all blend together into one busy afternoon, but try to keep tabs on your work-related trips. They could spell tax savings, according to Webb and Romano. “If work-at-home moms do run errands for the business, they should be sure to claim mileage properly, as it can fluctuate from year to year. It was 57.5 cents per mile in 2015 and is now 54 cents per mile in 2016, largely because gas prices have declined substantially.” They add, “Speaking of mileage, if moms donate their time to legitimate nonprofit organizations, there’s a special mileage deduction of 14 cents a mile — which can add up if it is an ongoing, long-term commitment.”
Steber says, “Make sure you track your beginning and ending mileage each year and all your miles in between. Just put those miles on your calendar entry for a quick way to track.”
The fact that you can no longer scroll through Facebook without a Jamberry or Thirty-One post can only mean that work-at-home moms are working hard, often in the home party business. As Webb and Romano explain, a home party business might just be another fun excuse for a tax write-off: “If work-at-home moms entertain in their home as part of the business or other organization — such as hosting parties to sell goods — they should be sure to track and deduct expenses for food and beverages, consumables like plates and plastic ware and other items used for the event(s).”
5. Earned Income Tax Credit
While the Earned Income Tax Credit applies to all lower-income parents, it may be especially helpful to the work-at-home mom whose business is just taking off. Harold Jean-Louis, entrepreneur and co-founder of Smart Coos, with 12 years of accounting experience, explains, “As a parent, this tax credit is designed to help low- to moderate-income families. Parents with income up to $39,131 (Single, Head of Household or Surviving Spouse) or $44,651 (Married, filing jointly) can take advantage of this credit. Please note that income limits vary with the number of children you have.”
6. Health insurance premiums
For self-employed moms, working at home may mean you won’t get employer-mandated health benefits, but you will get the chance to write off whatever you paid in health insurance on your tax return. “Self-employed individuals can deduct what they pay for medical insurance for themselves and their family,” confirms Jean-Louis.
7. Social Security taxes
Do you want the good news or the bad news first? When it comes to paying Social Security taxes, the bad news, says Jean-Louis, is that self-employed workers must pay 15.3 percent tax on Social Security and Medicare (normally 6.2 percent for employers and employees, each). But the good news is that you can write off half of what you paid.
8. Miscellaneous expenses
Lump all that extra stuff under one tax “catchall,” but don’t forget to write it off at the end of the taxable year, says Steber. His tax-friendly examples include banking fees, credit card fees, office supplies, office furniture and even office equipment like a computer, printer or fax machine. He continues, “If you pay other professionals to take care of your books, taxes, legal advice and advertising, make sure you keep your receipts — and any other expenses that are common and necessary for your business.”
The fine print
Before you make like Mary Tyler Moore and throw your hat in the air at the thought of that great, big tax return coming your way, just know that with the IRS, there’s always a catch. Depending on the type of work-at-home mom you are, whether you are self-employed or work remotely for another company, not all of these tax benefits will apply. Jean-Louis says the tax treatment will be different for each type of work-at-home mom and recommends checking with a tax pro to answer any specific questions.
Updated by Bethany Ramos 3/8/16