First, let me congratulate you on the fact that you are working at home! Whether
        it is part-time, full-time, or just a little something you do on the side for extra
        money, working at home and being your own boss is the lifelong dream of many
        people. Be proud that you have achieved what so many do not.

        Second, let me be very clear that this article is written on the assumption that you
        report your self-employment income---all your income---and that you pay the
        self-employment taxes that are due on that income. This article is also based on
        tracking and recording legitimate business expenses. Even if you have very
        modest income and are using your kitchen table a few nights a week as your
        office space, there are still legitimate business expenses that you can use to help
        reduce your self-employment taxable income. The purpose of this article is not to
        help you find ways to pad your deductions or to dodge paying your taxes.

        Last, this article is aimed at those who are either new to working at home or who
        need a simple explanation of a subject that may seem twisted and tangled.
        Business expenses and tax deductions don’t need to be scary monsters that live
        with the dust bunnies beneath the box spring of your bed. You don’t even need a
        complicated method of data storage in order to track your expenses and have
        quick and easy numbers ready when it comes time to file your taxes. In fact, you
        don’t really need much more than a notepad and a nice box. Of course, if you
        live for spreadsheets and bar graphs, you can get as high-tech as you like.
        Personally, I have a very simple Excel spreadsheet and four large file folders (one
        for each quarter of the year).

        OK, let’s get started.

        It is important to know what qualifies as a “business expense.” Well, that’s
        simple. A business expense is money that you pay out of your pocket in order to
        maintain your at-home business. An easy example would be a business phone
        line. If you had a second phone line installed as your business line, then you can
        legally deduct 100% of the cost of that phone line as a business expense. You
        can also deduct the cost of equipment, installation, and hook-up (for the tax year
        during which you installed the line). Business expenses do not have to be related
        to office equipment or furniture, or even the actual work that you do. Legitimate
        business expenses also include office supplies like computer paper, ink
        cartridges, pens, notepads, paperclips---literally anything that you buy specifically
        for conducting your business.

       I use this rule of thumb: If I wouldn’t have purchased it otherwise, then it is a
        business expense.

        Now, I do understand that at some time during your life, you would probably
        have some reason to pick up a package of paperclips or buy a couple of ink
        pens. What I’m talking about are the things that you find that you use regularly in
        the course of your business. As an example, I have two clients for whom I must
        send back-up CDs containing files of work that I transmit to them via email. This
        means that I regularly purchase CDs. Since we have a second computer (that my
        husband fiercely regards as “his”), it could be argued that we might have
        purchased the CDs any way. However, since I routinely buy CDs in large
        quantity, the cost of those disks is a business expense. We have a small supply of
        blank CDs for our personal use that is separate from my business supplies.

        Once again, my thumb-rule applies: If you buy it specifically for business use and
        you use it during the course of doing business, then it is a business expense.

        Depending on the type of at-home business you have, you may be well beyond
        the “paperclips and pens” type of expenses. If you have an in-home office (used
        specifically for your business and nothing else), and you have expensive business
        equipment (let’s say a high-tech copier that can handle blueprints), then your
        need to track business expenses and the manner in which you are going to report
        these on your self-employment income tax forms is a little bit more complicated
        and may even require having an accountant. This article does not address that
        situation.

        At the time of this article, the IRS allows business expense deductions up to
        $2,500.00 without requiring you to itemize your expenses into pre-set categories.
        That is, you can simply report a lump sum of $1,879.32 without having to explain
        it. The IRS “trusts” you. If your business expenses exceed $2,500.00, then you
        must file a “long form” and categorize your expenses as specified by the IRS.
        Although it is relatively easy, it does mean that you have to track your business
        expenses a little more closely. So, for the moment, let’s just concentrate on
        getting you accustomed to following a few simple steps to track your business
        expenses.

        #1---Always pay separately for your business expense items, regardless of
        whether by cash, check, debit card, or credit card, and save the receipt. If you
        are able (and are disciplined enough), then get a credit card with a reasonable
        credit limit and use it exclusively for business purposes. When the statement
        comes in each month, staple your saved receipts to the statement and pay off the
        balance (unless you are temporarily “floating” the purchase of an expensive item).
        The goal here is to learn the habit of paying separately for anything you purchase
        for business purposes and to save the receipt.

        #2---Designate a file folder, storage box, or some other specific place in which
        to accumulate your receipts. I find it easy to have four “pocket-type” file folders
        (the kind with the fold-over flap and elastic bands at the bottom). These folders
        are labeled for the four quarters of the calendar year (Jan-Mar, Apr-Jun,
        Jul-Sep, Oct-Dec). During the quarter, I just toss my receipts in the proper
        folder. If the receipt is not self-explanatory (or does not print out a description of
        the item), then I make a short note to myself (“presentation folder for Flamingo
        Publishing proposal”) on the receipt.

        #3---At the end of the quarter, organize your receipts (I put mine in date order),
        and record the dollar amounts. Calculate your total quarterly business expenses.
        (Please note here that if by the end of the second quarter [June 30th] you have
        accumulated more than $1,125.00, then it is likely that you will exceed the
        $2,500.00 limit for non-itemized deduction purposes. If that is the case, you will
        need to track your expenses by the categories that are pre-set by the IRS so that
        you can show total amounts in each category.)

        #4---At the end of the year, and after you have calculated your expenses for the
        4th quarter, add the four quarters to determine your net business expenses.
        Voila! You have just tracked your business expense for the entire year!

        Eventually, you will need this dollar amount in order to calculate your net taxable
        income from self-employment. If you are not planning on filing your taxes early in
        January, then bundle up the receipts and save the printout (or penciled-in figure)
        of your total business expenses. You should establish another file
        folder/box/storage area for this information and whatever other self-employment
        forms you are accumulating for Filing Day.

        Tracking your business expenses doesn’t have to be hard or complicated. Make
        the system suit your style---and just remember: Pay for the item(s) separately and
       keep the receipt!

        Jan K., The Proofer is freelance proofreader and copyeditor. Visit
       http://www.janktheproofer.com for more information about Jan’s services;
       http://work-at-home.janktheproofer.com for work at home articles and free
        printables; and for work at home moms, visit Jan’s sister site
       http://work-at-home.momsbreak.com for articles, free printables, and work at
        home T-shirts and other fun products.