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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