Home Business Tax Deductions ? 3 Deductions That Could Save You 00s
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Let’s face it, very year millions of Americans are over paying on their taxes and they do not even realize it, their losing money by not obtaining all the appropriate simple tax deductions which are provided to them by good old Uncle Sam. In this article we are going to cover how you can use your home business as a way of acquiring the tax deductions you deserve.
Home Business Tax Deductions 3 To Help You Save
This can be one of the bigger tax deductions, but if you plan on claiming this deduction, you can only use your home office exclusively for your business. If you’re using your office for anything other than for your home business, you can not claim this deduction.
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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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Home Business Tax Deductions You Should Take
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In any home business you definitely have more tax advantages than if you were self-employed. The tax advantages become substantial when you consider how you can improve the profitability of your business by declaring all of the home business tax deductions you are entitled to.
You may be
missing some very important deductions. You must itemize your deductions for your home business operation on a separate schedule just as you would for your personal deductions. Knowing which deductions you are entitled to can save your home business hundreds of dollars a year.
Here is some background information on how your income tax amount is arrived at by the IRS.
The U.S.
taxation code states that almost all income is subject to federal income tax The way that you, as the owner of your home business, arrive at the final amount of income tax is as follows:
Gross Income – (All Expenses + Miscellaneous Deductions + Depreciation on Assets) = Taxable Income.
Taxable Income X (Your Tax Rate) = Income tax for the fiscal year.
Here is a quick definition of the terms in the above taxation equation:
Gross Income = The total of all income for the year after the cost of the inventory has been paid for.
Expenses = All costs of doing business during the fiscal tax year. Examples include payroll, materials, supplies and interest on business loans, etc. To find out if at expense qualifies as a legitimate business expense, consult your accountant or the IRS.
Depreciation = This is the way of spreading out the deductibility of an asset over a period of more than one year.
The IRS has certain different depreciation schedules for different business property. This is done for assets like real estate, equipment and other assets with a long economic life. This method of taxation write-off has certain advantages. Be sure to talk to your accountant regarding proper depreciation rules. These rules are subject to change by the Congress and the IRS.
Miscellaneous Deductions:
This is an often misunderstood and overlooked way to save a lot of money on taxes. Remember that these types of expenses must be Totaled up and declared on a separate schedule of your income tax forms.
Always track your expenses and be sure to save at least one copy of every deduction. You will be asked for proof of every transaction that is declared as a deduction if you are audited by the IRS!
Here is a list of some of the things you can deduct from your income taxes:
Business related expenses include:
1 Air fares2nd Auto expenses3rd Books and Magazines4th Educational Expenses5th Home Office Space * + a portion of utilities, telephone, and maintenance costs6th Office Furniture7th Cleaning Expenses8th Meals with Business Clients9th Laundry Expenses (When Traveling)10th Advertising11th Impairment-Related Expenses12th Licenses and Regulatory Fees
* If you own your home you must use the IRS depreciation rules to mine this deterministic deduction. If you rent then you may deduct a portion of your rent
Check IRS Publication 535
to find out if you can deduct any or all of the above.
As you can see there are many deductions that are allowable for your home business. The best way to get more information on tax deductions and related information on income taxes is to go online to www.irs.gov. There you will find a helpful search engine containing thousands of government publications that you can research and print out if you need to.
Now you have a good idea of the deductions you are entitled to take. So do your research, keep track of your expenses and take all of the deductions you can for maximum profit every year.
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