When you work at home, it’s easy to start thinking of every expense as a personal expense. After all, it’s your printer that you’re buying paper for, your computer that needs an upgrade and your coffee pot that needs more beans. It’s easy to wind up covering every business expense you have out of your personal funds. But whether you’re working for yourself or you’ve working for an employer, it’s worth the time it takes to separate out your personal and work expenses.
One of the most important reasons to separate your business expenses from any personal money is that you can often write off business expenses as deductions come tax season. Just what you can write off depends on whether you’re self employed or not, but there are some deductions available to employees who telecommute, too. A tax preparer can help you find which deductions apply to you — but he or she is going to want to know what money you spent over the course of the last year.
It’s also important to have a good record of your expenses. In some cases, you may find that an employer or client is already set up to reimburse expenses. And if you find that certain expenses are getting out of hand — perhaps you’ve been asked to travel into the office more than you originally agreed to — you may be able to convince an employer or client that reimbursing you is the right thing to do.
Lastly, it’s easy for expenses to get out of hand if you don’t keep a close eye on them. Even being able to budget for work expenses you have to pay out of pocket can make the process of managing your personal finances a lot easier.
The Nuts and Bolts
How you choose to separate out your work expenses from your personal budget depends on what’s easiest for you. Personally, I found that since I’m self-employed, the easiest option was to open a separate business account at my bank — all my work expenses are paid out of that account and all of my income goes into it. From there, I cut myself a pay check into my personal account as I need to.
You don’t necessarily need a separate checking account for your work expenses, especially if most of your income comes from one source. In that case, something as simple as creating a new category in whatever system you use to manage your money is enough. As long as you can quickly sort out which expenses where for work and which were personal, the exact method doesn’t matter. Most software makes categorization easy. Some even allow you to create rules to automatically categorize certain expenses as work-related.
Another alternative is to use an expense-tracking tool. It can be a little harder to manage the record keeping with this approach, but it does provide a simple solution for many people.
How do you keep track of your expenses?
Image by Flickr user shanechambers