Having a home-based business can work to your advantage when tax time rolls around. Running a business out of your home not only gives you the freedom to work from home, but it also creates home business deductions on your tax return. When filing your taxes, it is best to always be honest and reasonable when figuring out your deductions. Calculating too much or listing things not relevant to the business can be a red flag to the Internal Revenue Service (IRS), resulting in a tax audit.
There are several different home business deductions to take advantage of when filing your taxes. If you run a home office in your home, meaning a room specifically designed as an office for your business, this can be deducted. The room does not have to be a full room. If you measure your work space and divide it by the total amount of square footage your home has, that amount is the percentage you can claim as home-related business expenses. These expenses include the mortgage or rent, the insurance, electricity, etc.
It is wise to keep all your receipts if you purchase office supplies because they can be deducted. Furniture that is purchased and used for your business can be deducted 100% the first year or broken down over a period of seven years, otherwise known as tax depreciation. Office equipment such as fax machines, copies, scanners and computers can be deducted at 100% the cost during the first year as well or broken down over a period of five years.
If driving is a necessity in running your business, logging your mileage and keeping all parking charges and toll charges is important because this can be used as home business deductions. If you lease a vehicle, you can deduct your payments; however, if you own the car, you can only factor in the interest paid on the loan for that year.
When traveling for business, the entire cost of the hotel, dry cleaning and car rentals is 100% deductible. Only 50% of the total cost of food while traveling can be deducted. Health insurance premiums are deductible at the full cost, however, the cost for health insurance cannot exceed the net profit for the business for that tax year.
You can deduct 50% of what you pay into Social Security. Other home business deductions can include retirement contributions, the cost of business phone calls, advertising and marketing costs, and the cost of an accountant or bookkeeper. Interest paid on business credit cards and loans, annual fees for business credit cards, the cost of uniforms and wages paid to employees are a few more examples of home business deductions.
It is wise to know the tax laws and your rights as a business owner when filing your taxes. Being honest doesn't mean you have to cheat yourself out of saving money through deducting important expenses. The opportunity is beneficial and should be taken advantage of. Staying organized and keeping a record of everything is an excellent way to demonstrate proof should there be an audit. Having proof saves a lot of time and hassle if the IRS ends up asking questions.