Home Business Tax Deductions

The thought of taxes scare many people. The IRS has done that to us. When in business, or for yourself, you have to keep records and documents in order to be able to file a tax return at the end of the year. But, you have a chance to save a lot of money by knowing how to take advantage of your home business deductions.

Knowing What Your Deductions Are

Some common deductions a home-based business owner is entitled to.

-- Auto or other vehicle deductions: mileage, gas, insurance, among other related expenses.
-- Write off business cards, stationary, office supplies, business meals and entertainment.
-- Business traveling expenses, education, conferences and even the interest on your business credit card can be counted in your favor.
-- Your computer, Internet connection, website hosting, and related expenses could be deducted as well.
-- Office furniture, the phone, fax machine, printer and other devices have deductions.
-- Postage and delivery of goods are considered business expenses and deductible.
-- A home-based business can also deduct rent and utilities that keep the business running, based on the percentage of total space devoted to the business.

Deductions you want to look into using on your 1040 are:

* Half of your self-employment taxes.
* Up to 100% of your medical insurance, and out of pocket costs for you and your family.

Who Prepares Your Tax Return

You will decide who is going to do your taxes. If you plan to do them yourself or if you want a CPA to do them for you. There are a number of advantages in using a tax professional.

1) They can save you a lot of time.
2) Reduce your stress and unneeded frustration.
3) They can spot deductions you may miss or not know about.
4) It also saves you from being responsible for errors made in the preparation, which could end up saving you thousands.
5) Their services are deductible, your time preparing taxes are not.

No matter who you decide to prepare your taxes be sure to claim all possible deductions to save you as much money possible in the long run. A home-based business has many tax breaks and you should make sure you know what you qualify for and how to save from paying too much in taxes.

When claiming home business, it is important to keep all receipts for each and every amount, no matter how small, you are claiming. When dealing with the IRS, receipts are your ammo. Keep them at all costs with all the rest of your records.

A Home Business as a Percentage of Your Home

When running a home business, taxpayers often wonder how they differentiate a business expense from a home expense. The key is the square footage. Divide the square footage of your office by the total square footage of the home. This resulting number represents a percentage your business uses, such as 20 percent – don't try to cheat on this.

Put it another way, the home business represents a percentage of the overall square footage of the house. Once you have the answer, you can multiply it by the yearly amounts paid for rent or mortgage interest, insurance, maintenance, utilities, taxes, depreciation of the home and repairs. Each of these home business tax expenses figures can then be deducted.

In addition to the above, you can also deduct expenses completely related to the business. For instance, the purchase of a desk for the office is entirely attributable to the business and can be deducted in full.

Words of Caution

Do not fail to claim your home business tax expenses because of fear of an audit. It is not a rational fear!

There are some limitations to home business tax expenses. If you are reimbursed by your employer for your home office expenses, you cannot claim those expenses as a tax deduction. No double dipping, it will only get you in trouble.

Running a small business can be both stressful and incredibly gratifying. Make sure you claim your allowable home business tax expenses to help your cash flow stay positive.

The information herein is not intended as tax advice and I am not a tax advisor or CPA. To comply with IRS requirements, the information in this article should not be used for avoiding penalties under the IRS Code. It is best to check with a qualified CPA as rules change all the time and follow their advise.

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