Posted by Income Taxes and Bookkeeping LLC

4 Important Tax Deductions for Home-Based Businesses

Working out of your home can save your small business lots of money, but you can save even further by accurately filing your tax returns to take advantage of home-based business deductions. Many freelancers and independent contractors do not even consider the tax implications of using their home as a business. Do not miss out on costs savings—contact Income Taxes and Bookkeeping for more information about home-based business tax deductions for your individual situation.

1.     Startup Costs

First, it is important to note that if you just got your business started this year, then you may be able to deduct the startup costs that you incurred to get your home-based business off the ground. This can include things like:

·      Purchasing equipment like computers and printers

·      Fees for incorporating your business or other legally required filings

·      Initial design fees for logos or business plan development fees

·      Printing business cards

2.     Home Office Deductions

Because home offices are becoming more and more common, the IRS is much less likely to audit a taxpayer that claims home office expenses now than in years’ past. There are still some requirements that must be met to take a home office deduction.

First, the office should only be sued for administrative or management activities of your business. That means that your computer that use for business can only be used for business, and your office desk cannot also be your kitchen table. Second, it should not be a “second” office—there can be no other location that you also carry out these functions of your business.

If you qualify for a home office, then that means you can take a slew of other home-related deductions as well. Take an example. Imagine that you have a 1,000 square foot home, and you use a small room as your office. This room is about 100 square feet—enough to fit a desk, a chair, and couple of filing cabinets and bookshelves. You use this space exclusively for your freelancer work. This space makes up 10 percent of your home. That means you can take expense 10 percent of your home expenses, including:

·      Rent or mortgage payments

·      Renters’ or homeowners’ insurance

·      Utility expenses for your home

Starting in 2014, there is also a simplified method that you can use to make this deduction that is not based on a percentage of your home. The simplified method allows you to take a specific rate for each square foot of space that you use as your office in the home.

There are various exceptions and limitations to this rule that you will need to be aware of. Your Winchester tax preparer can help you work through this deduction and claim it to the maximum extent allowed under the tax code.

3.     Business-related Expenses

Every expense that your business has should be deducted from your business income. Small business owners sometimes overlook expenses that can significantly decrease their taxable income.

Keep in mind that if you use your vehicle to travel for your home-based business, such as to trade shows, to the bank, or to visit with a client, then you can deduct a portion of your vehicle expenses. For some home-businesses, they can deduct around 55 cents per mile driven for business purposes. Other often overlooked business expenses include:

·      The portion of your internet expenses that is attributable to your business

·      Shipping expenses

·      Remodeling the business-portion of your home

·      Website hosting service costs

·      Marketing or advertising costs

·      Costs of becoming licensed or certified

·      Equipment costs (computers, books, printers, briefcases, etc.)

·      Office supplies

·      Client meeting expenses (such as travel and a portion of the meal expenses)

4.     Self-employment Benefits

Self-employed individuals can now deduct the cost of their health insurance as a business expense. This includes the cost for both you and your family. However, this benefit will not apply to those who have a full time job and are self-employed on the side. If your spouse has an employer-sponsored health plan, then you may not be able to take the deduction either.

Self-employed individuals can also take advantage of tax savings related to the self-employment deduction and contributing to a qualifying retirement plan.

Getting a Tax Professional

Part of your business expenses may also include hiring a tax professional who can not only do your taxes, but also keep a keen eye on your books. Home business taxes can be complicated, and trying it on your own could cost you thousands. Instead, contact Income Taxes and Bookkeeping in Winchester, IN for tax assistance. Use the profile link below to find out more or use the Contact button to get started.

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