Your Home Based Business Tax Deductions
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A big advantage of
working from home is the tax benefits of operating a home based business. Working from home Allows you to deduct portions of bills that you are already paying to live there.
You can deduct home expenses
if you actually work in your home. It is easiest to do this if you have a room set aside for your business. Measure out how big that room is in proportion to the house, and you can deduct expenses using that percentage.
For example, if your place of doing business takes up 5% of your house, you can deduct 5% of your heating expenses for the days you work. (In other words, if you do not work weekends, you can not deduct for weekends.)
You can deduct items such as mortgage interest (though not your mortgage itself), electricity, telephone, insurance, and expenses for maintenance and repair. In general, you can deduct the portion of expenses that directly Relates to your business.
You can deduct costs for your internet service provider in proportion to the amount you use it for your business, too. If it’s used completely for business you can deduct it all, but be certain before you do this that you are not using it for other reasons.
Having a CPA do your taxes for you has major benefits. They have computer software made up by tax pros and former IRS workers that you would not ever be able to use unless you went through lots of accounting training.
everything working 100% honest with your CPA about. If you are called in for an audit your CPA will tell you to say nothing but your name and your CPA does all the talking. The IRS has to find mistakes not you. If a CPA does your tax deductions you will get you would never know to take and your CPA will therefore take away deductions you can not legitimately take.
A CPA will cost you more but will get you much more back. Tax filings done by CPAs are far less likely to be called in for audits because the IRS knows the CPA’s reputation is at stake with every tax form filled out and so the CPA will be very careful that every little detail is done correctly.
Keep a separate notebook
for tax deductions on each page and make a heading for all possible deductions like advertising, supplies, repair parts, phone, computer, etc. and write them down and save ALL your receipts in a separate large envelope. Write your deductions in this notebook, everyday happen, as they. Remember, your tax preparation is a daily, year round effort and is an important part of your business.
Write everything in your notebook that could be a deduction and then at the end of the year let your CPA decide what is and is not a deduction. He or she knows and you do not. It is their job to know. This way you will not miss out on any deductions you do not know for sure on and you will not take any deductions you do not have coming. Pretty neat huh?
You will get a lot bigger income tax refund this way and have a clear conscience you did all the right things and you will not have any worries about a scary IRS audit. Talk over with your CPA what he thinks about the way you are keeping records and learn from him or her better ways to do it. They will usually have valuable tips for you to help you run your business better. This chit chat at the end of your tax preparation is invaluable to you.
The tax benefits of operating a home based business enable you to deduct things you would otherwise be paying in full. If you are considering a business from home, it’s a good way to lower your costs. This is just one more advantage of working from home.Source:http://www.irs.gov/faqs/faq-kw82.html Plus my own life experience of business tax over 40 years
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Home Based Business Tax Deduction Topic – Home Office
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The IRS closely monitors
this deduction and it is difficult to pass the tests the IRS has laid out. However, do not let that stop you from taking this deduction in fear of an audit.
The first and most important requirement for this deduction is that you must use this space exclusively for you in your home business. Generally speaking, it will be a separate room (s) in the home. It can also be a section of a room if you clearly divide the room between the business section and the section that would include personal activities.
This separate room can not be invaded by kid’s toys or used as a study room that other family members can use the computer and printer on occasion, even you use it exclusively for 16 hours a day. The occasional interruption when someone in your family needs you or making a personal call from time to time will not violate the spirit of this rule.
The next important requirement for this deduction is that the room must be used regularly. Although there is no exact definition of what constitutes regular use, but it can not be some room in the house that you occasionally use because every now and then you need the space. It should be a room that you use on a regular basis and in proportion to how much time you devote to your business.
If you run an accounting business part-time and use the room four to seven nights per week for a couple of hours each night, then this should qualify. If you run you’re accounting business full time and use the room six to ten hours a day, then this should therefore meet the requirement. It will be up to the individual IRS auditor to deterministic mine if you meet the spirit of the regular use test.
The third most important requirement is that it must be the principal place of business or a place where you regularly meet customers. This test is easier to pass than in previous years to 2006. As long as you manage your business from the home office and you do not have another office for the business elsewhere, then you will most likely pass the principal place of business test, assuming you pass the exclusive and regular use test. Just keep in mind that the more activities, time, and money you make while physically in your home office, the higher the probability you will pass this test.
You will want to review IRS special form 8829th It outlines all of the records you should keep to help prove your write-offs are legitimate. This includes photographs of the desk, computer, filing cabinets, and other related office equipment. It would not hurt to have your business cards showing your home address and a business phone number at the home. So keep a log on a calendar of any customers you meet in your office and how many hours you spend each week in your home office. Measure the space in square feet you are using and compare that against the total square feet available space in your home. If you use 200 square feet for your office, and your home is 3000 square feet, then you can claim 200/3000 or 6.67%. Multiply this percentage against your mortgage payments, utilities, internet, phone, and other home-related expenses. That is a brief summary of how to qualify for a home office deduction.
There are many more rules that could trip up the above qualifications, including Day Care Facilities, storage, and depreciation, and how it affects your self-employment taxes. There is also a cap on how much you can deduct for the business use of your home. Figuring out a basis for the value of your home, repairs and maintenance, and several other calculations are therefore required. Some things like furniture and equipment can earn a depreciation deduction regardless of home office Whether you pass the test.
Fortunately home business tax software such as TurboTax Home and Business will walk you through all the steps of the home office tax deduction calculations. . If you’re going to use a tax accounting service, make sure you go over these kinds of deductions with the tax professional. Bring this article with you and ask them if the have experience with how to prepare returns for home businesses and all the home office deductions that are available to you. If they hesitate or stutter, go somewhere else. If could cost you thousands or worse, you earn an audit
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Home Business Tax Deductions ? A Part Of Home Based Business
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Nowadays, a lot of individuals have turned into running their own home business. We have seen such a large spike in people running their own home-based business mainly because a lot of people don’t want to have the same old 9 to 5 jobs anymore, others are looking for multiple-streams of income and for still others, and the reason is unemployment or lack of job security. Whatever the reason is, for starting a home-based business, it will almost always give you large, and maybe unexpected, tax advantages.
Home-based businesses serve a lot of other advantages as well. For one, it enables them to start small instead of starting with so many strings attached. Starting small allows you to operate at a less expensive level and lets you work on your own pace. In addition to that, to start home businesses only a small amount of start-up capital, partially because most of the equipment that they need is already present. And do not overlook the tax deductions that you can receive from running the business from home, because it often is large enough to actually cover the costs of running the business itself.
Vehicle Deductions
One of the most popular advantages that home-based businesses take advantage of is for using their personal vehicle for business purposes. Home business tax deductions from your commute can be deducted because these are considered necessary to run the business. You may also need to meet your clients, deliver product or make necessary trips to purchase things. Be cautious though, because this tax deduction tends to be abused by a lot of people. Make sure that your trips are appropriate, legitimate and you maintain a vehicle-use log.
Hiring Your Family Members
As a home business owner, you can hire your children instead of paying them an allowance. Wages paid to a child at least 7 y.o. and under 18 for part-time work are tax deductible to your business, and the money earned by the minor is tax-free to the child — up to ,700 per child, per year.
Telephone Bills
You can also have a tax break your phone bills from your taxes. Nevertheless, the IRS will deem the first phone line as a personal line. Any extra phone lines like a fax line or, sometimes your cell phone can be deducted.
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