Have a home business? Here is what you need to know regarding possible Tax Deductions:
IRS Topic 509 — Business Use of Home
Yes. It is true. You may deduct expenses for the business use of your home – i.e. Home Business, Self-Employed, and other descriptive terms for being an Entrepreneur.
Even if you are a formal Employee this is also true in reference to income earned outside of your “day-job”.
However, in order to qualify, PART OF YOUR HOME (THE “OFFICE”) MUST BE USED REGULARLY AND EXCLUSIVELY FOR BUSINESS.
Valid Deductible expenses for business use may include:
* The business portion of real estate taxes
* Deductible mortgage interest
* Casualty losses
* Maintenance and repairs
(You may not deduct expenses for lawn care in general or for painting a room not used for business.)
ADDITIONALLY: You may be able to claim the a portion of the following:
* by “portion” we mean the percentage of the expense in relation to the overall costs and square footage of the entire home
- Home Insurance
- Maintenance and repair
- Mortgage Interest
- Property Taxes
- Rent (If you own your home, you can depreciate the appropriate share of the home over 39 years)
- Security devices or monitoring fees as a percentage of the protected area which is used for business
Separate and apart from claiming the things listed above, you should also be able to deduct expenses (in whole or in part) incurred with regard to your business in general, such as:
- Advertising costs
- Business travel expenses
- Equipment purchase for business, such as a computer.
- Meals and entertainment for business related lunches with Clients or prospective Clients to discuss your business. (50% Deductible)
- Office supplies such as printer, cartridges, paper etc.
- Transportation expense of getting to and from your clients.
- Moving Expenses, the business portion of moving.
- Phones and Communications business portion
- Tax Preparation Expenses
- Software used for business purposes.
- Educational Expenses – incurred directly to learn industry-specific skills needed for your business
- Record keeping services
Though not specific to home-based businesses, the money that you pay to have your tax return prepared is also tax deductible.
Employee Deductions for your Home Based Business:
- deduct your spouse and children for your home based business if you employ them
- You can set up a pension plan while operating a home based business. (Losses incurred may also be deductible)
- ANY Repairs and improvements to your home office which are DIRECTLY RELATED to your business are 100% deductible.
**NOTE You cannot deduct business expenses for any part of your home that you use for both personal and business purposes NOTE**
For example, a lawyer who uses part of his home in which to write a brief or memos on behalf of clients; if he also uses that same are for personal purposes, he MAY NOY deduct any business use expenses of his home!!
STANDARD OF REVIEW: PRINCIPLE PLACE OF BUSINESS TEST:
When you are unsure whether or not your qualify the simply ask your self this question: Is your home the “principle place of business”? i.e. where most of your activities and time is spent in the completion of your business.
THE ITC BOTTOM LINE – IF YOU HAVE A SIDE BUSINESS AND YOUR HOME IS THE PLACE IN WHICH YOU DO MOST OF YOUR WORK, THEN YOU HAVE ADDITIONAL TAX WRITEOFFS!!
Below is a quick checklist reminder of the important things to remember when considering Home Business Deductions:
**NOTE** Remember that you can deduct a percentage of the expenses and this percentage is based on the square footage of the “office” area in your home, when compared to the actual size of your ENTIRE home **NOTE**
* Rent payments
* General repairs
* Equipment – i.e. computers,copiers,phones,fax machines, etc.
– Office Supplies & furniture
* Shipping and Postage costs
* Vehicle Use – keep track of your business mileage versus your total mileage; records should also include the date, destination, and business purpose behind the trip
– Commuting Miles from your home and back; ONLY IF your main place of business is an office or store
* Retirement – deductions are permitted on contributions made to the following:
– SEP – simplified employee pension
– SIMPLE – savings incentive match plan for employees
– Qualified plan – defined-contribution plan or defined-benefit plan
* Self-Employed Health Insurance costs – if you are ineligible as an employee and you make payments, you may deduct those payments for the following individuals:
– You,Spouse,Dependents,Children under the age of 27 at the end of the year
** On “Big Ticket” items like computers, furniture, SOFTWARE, etc….you may want to use depreciation to deduct the expense. i.e. deduct the cost of the item over the life of the property purchased instead of all in the year that you purchased it.