Home Based
Business
Tax DeductionNo one likes to pay taxes. By taking
advantage of a home based business tax deduction you can keep
more of your money. Tax deductions reflect the legitimate cost
of doing business. Operating from your home can even offset
some of the expense of your home.
Tax
Deductions
Office supplies are
an easy one. In addition to the pens, paper and paper
clips, don't forget to keep track of your postage and shipping
cost for anything you send out.
Office Furniture is
another one to keep track of. Unlike office supplies which must
be deducted in the year of purchase, furniture can be
depreciated.
Telephone expense is
another home based business tax deduction. The best practice
would be to get a phone that is dedicated to your business and
then deduct the entire bill. Otherwise you would have to
analyze each bill to determine the calls made. Many home
businesses today use a cell phone as their business phone.
Equipment is also
deductible, that used in the office and that used on the job.
The IRS does look at personal use of the computer. Recommended
that you have two computers, one for personal use the other for
business.
The Home Office
itself can be used as a home based business tax deduction. The
IRS has strict guidelines on the computation and use of the
space. The space can only be used for business. In addition to
a portion of the lease or mortgage payments, portions of
utility and maintenance cost can also be included.
Write offs taken for the home office will have an effect on
taxes at the time of the sale of the house. You should
discuss this with your accountant prior to taking the
deductions.
Auto expense is an
area that you will want to keep track of. Keep a journal
to record each business trip. You will want to note the
date, mileage, parking and toll cost and what reason for the
trip.
You will also want to track any repair cost and maintenance.
Loan and lease payments may also be deducted.
Travel and
Entertainment expenses are another deduction you can
take advantage of. If you take a client out, you get a
50% deduction. If you travel on business, the trip (with
the exception of the meals) is a 100% write
off. Insurance and
Retirement deductions are available as are
contributions to a retirement account. On your
income you will be paying the Social Security withholding
tax both the employer and the employee. The
employer half is a tax deduction.
Warning
Tax codes are complicated and they are constantly changing.
The home based business tax deduction will be different
for some items if you have a corporation vs a sole
proprietorship.
Being too aggressive on tax deductions can raise a red flag for
the IRS and subject you to an audit, if deductions you have
taken are disallowed then you could be subject to penalties and
fines. On the other hand, you do not want to pay the government
any more than you are legally required to.
Keep good records. Keep all documentation for your
deductions in case you are ever called in for an audit for at
least 7 years. Scan or copy your documentation so you do
not have to give your accountant the originals.
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