There are many advantages to having your own home based business both personal and tax advantages. Briefly, from a personal perspective, you are your own boss, you make your own decisions, choose your own hours and you have the ability to easily manage your work and family responsibilities. Of course, to be successful you must have the self discipline to pay attention to business and be able to handle all aspects of operating that business. One of those aspects is taxation, and there are many tax benefits available from operating a business from home. Here are some of the top ones.
HOME OFFICE DEDUCTION
The Home Office deduction is one of the more complicated and misunderstood tax deductions for the small business person who works from home, but it can also be one of the most lucrative. The room must be used exclusively for business. To figure the deduction, you must determine the total square footage of your home and the total square footage of the office. Example: Total house is 2000 square feet and the office area is 200 square feet. This will give you a 10% office usage equation. You will then be allowed to deduct 10% of your costs for the upkeep and maintenance of your home which includes insurance, taxes, mortgage interest (or rent if you do not own), electricity, gas, and repairs for the entire house. Additionally, you can take specific fix-up and maintenance costs in full if they are solely for the business space. You can also deduct the cost of office equipment such computers, office furniture etc, as long as they are used exclusively for business as well as other office supplies like paper, pens, pencils etc.
There is also an alternative method for determining the deduction if you don’t want to do the math. This simplified method allows you to deduct $5.00 per square foot of the space up to 300 square feet. All the other rules apply.
The costs of telephone, cell phone, internet used for business are deductible. If these are shared or used for other purposes you must figure the percentage of business use.
If you use your automobile in your business for things like visiting customers or vendors or gong to business meetings and other business related activities you are entitled to deduct the expenses associated with the business use of your automobile. You may choose to take a deduction for actual business miles driven plus any parking fees and tolls. The mileage deduction rate for 2016 is 54 cents per mile. It is important to keep an accurate record of your business miles in the form of a mileage log. Instead of mileage you may deduct actual expenses of business use of your automobiles such as gas, oil, repairs etc. You must still keep an accurate record of business miles driven as well as total miles driven for the year in both cases.
You may deduct the amount of health insurance premiums paid for yourself and your dependents from you gross income. It is not necessary to qualify for itemizing your deductions on Schedule A.
You may deduct the cost of business travel. Expenses like airfare, hotels, car rentals etc are deductible. You may also deduct 50 percent of your meal expense while traveling on business.
You can deduct the cost of entertaining clients. You can take them out for a meal and entertainment but they must be paying customers or prospects who are expected to be paying customers.
Operating a home based business can be both personally satisfying and lucrative. One of the most important tasks, however, is keeping complete and accurate records. It is important to be able to take all tax deductions that you may be entitled to and if you have accurate records you will have no problems if you are selected for audit by the IRS. Be sure to consult a tax professional to be sure you are on the right track.