It is
that time of year again to get organized to prepare our taxes. Most of us know that home businesses offer many
tax benefits. If you’re just starting
out, however, you may be unaware of a few of the great deductions most of us
can take.
I am not an accountant or CPA. My suggestions may not be applicable to you.
They may well be, but be sure to speak with a tax advisor prior to taking home
business tax deductions.
Here are
just a few of the deductions that can save us much more money than we would
have if we worked a j-o-b.
The home office deduction is
not limited to a full room. Your home office can be part of a room. Measure the
area where you conduct your business and divide that by the square footage of
your entire home. That percentage is the fraction of your home-related business
expenses (rent, mortgage, insurance, electricity, etc.) that you can generally claim
on your taxes.
To qualify as a “deductible home office,” the following
criteria must be met.
·
Your home must be your principal place of business (or a
place where you do administrative chores, such as scheduling and recordkeeping,
and you have no other fixed business location); or a place to meet or deal with
customers or clients face-to-face on regularly.
·
You must use the space you claim regularly and
exclusively for business (with a couple special exceptions I will not address
here). So, you cannot claim your kitchen table as your office desk if you feed
your family at that table.
You can deduct the business and office supplies you
buy. Maintain receipts for these expenses, and they may offset your taxable
business income. Office supplies include
pens and paper; however, they can also include office-furniture,
computers, scanners, etc. You can take these large deductions all at once in
the year of purchase, or you can deduct a percentage of the cost spread over seven
years. Consult a tax advisor before
claiming these deductions to be certain you do so correctly and legally.
Business mileage may be deductible. Miles
driven to and from your office (a job or your small business office) are NOT
tax deductible, however, miles driven exclusively
for your business, along with tolls and parking costs may be. Keep a log to record these expenses and the purpose of each trip in your vehicle to
document the expenses. There are two
different ways to claim these deductions, so again, ask your tax advisor.
Small-business travelers can deduct the entire cost of a hotel,
transportation – air, auto or rail, and even costs incurred during the trip
such as car rental and tipping a bellhop. A portion
of the meals you eat during business travel is deductible. Save documentation for all travel expenses.
Self-employed health and long-term care insurance
premiums may be 100% deductible,
but there are limitations to which you must adhere. Business and
industry-related magazine subscriptions can be claimed as well.
One tax DISadvantage for self-employed or small
business owners is that you must pay double the Social Security contributions.
Federal law requires employers to pay half and employees to pay the other half.
As a home business owner, you are both.
There are many more home business
deductions than I can include here. Take
advantage of all legal deductions available to you, and your cost of doing
business may be greatly reduced.
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