Home Business Tax Benefits

A home based business is an investment that can bring you multiple rewards. As a home based business owner, you need to be aware of the numerous tax benefits you can utilize to reduce your overall income tax bill. Believe it or not, the United States Government wants your business to succeed. Therefore, they afford you multiple tax deductions that you should take advantage to save a considerable amount of money.

So what tax benefits can a home based business enjoy? Following are a sampling of the tax benefits available. It is a good idea to consult your Accountant and/or the IRS for further tax guidelines.

Let's start with business expenses. It takes money to run and grow a home based business. For example, your home based business website requires money to set up and a monthly or annual hosting fee. You may have also spent money on computer software for your business. You also spent money on office supplies for envelopes, postage, pencils, etc.

Don't forget about any education (seminars, classes, workshops) that you took in order to enhance the success of your business. These expenses can be deducted as well thus reducing your tax bill. The key is to always keep a receipt for the expense. Therefore, you will have proof if you are ever audited. Plus, receipts help you keep track of where you spend your money.

Following are a sampling of specific business categories and deductions you may be able to utilize:

• Office supplies: paper, stationery, postage stamps, folders, etc.
• Advertising costs: Business cards, Internet ads, newspaper ads, brochures, etc.
• Education costs: seminars, workshops, classes, teleseminars,
• Legal and Professional Fees: Accountant services and lawyer services
• Dues and Publications: Publications that support home based businesses, your niche, businesses in general, etc. Plus dues for any associations or clubs you have joined to further the success of your home based business.
• Automobile Expenses: You can deduct a certain amount per mile used for business - consult the IRS website for specific information. You can also deduct gas used for business, repairs, tires, oil, supplies, lease payments, car insurance, etc.
• Business Travel: You can deduct your airfare, lodgings, and a portion of your meals.
• Insurance: You can deduct certain insurances such as business insurance.
• Interest: You can deduct interest on business loans.

Make sure to check with your Accountant and the IRS regarding these deductions. This advice is repeated because tax laws change and are different for different states and countries. Also make sure that you save receipts, cancelled checks, and any statements that prove that you incurred these expenses.

Another great way to realize tax benefits for your home based business is to use a tax preparation software program such as TurboTax. TurboTax leads you through an interview process to help you determine your tax bill. TurboTax provides federal and state updates that take into account the new tax codes. Plus, you can deduct the purchase of TurboTax as a business expense.

Being aware of the tax benefits of home based businesses will significantly reduce your tax liability. This can mean the difference between a profitable and struggling business.

"Deduct your Home Office!"

Home based businesses are unique in that they are operated from home. This unique business setting provides a unique tax deduction experience. Did you know that you can enjoy huge tax savings if you run a home office? There are specific guidelines that need to be followed to be able to legitimately deduct your home office. Therefore, it is always a good rule of thumb to check with your Accountant and the IRS guidelines before taking this deduction. Tax codes and definitions can vary each year thus making it imperative that you stay on top of the changes.

In general, you first have to figure out the portion of your home that is considered your home office. For example, do you run your home based business out of one room using your computer and the Internet? If so, then you have to figure out the square footage of the room compared to the square footage of your entire home. For example, let's say your home is 3,000 square feet and your home office room is 150 square feet. The portion of your home used for business is 150 sq. ft/ 3,000 sq. ft which is 5%.

This number will help you determine how much of the following items you can deduct from your tax bill:

• Electricity
• Telephone
• Rent or Mortgage
• Mortgage Interest
• Telephone
• Internet
• Maintenance and repair expenses
• Property taxes
• Home insurance

As with any tax deduction there are some restrictions and requirements you need to be aware of. For example, in order to take the home office expense you must use that portion of your home for exclusive and regular activities for your trade or business. In addition, your home must either be your principal place of business OR a separate structure that you use for your business.

This means that using a spare bedroom that still has beds in it is not used exclusively for your home based business. Therefore, you need to set up a legitimate office with office supplies, equipment, etc. If you are ever audited you will have to provide proof that you use the room exclusively for business and on a regular schedule.

You can also deduct the office furniture you use in your home based business such as a table, chair, and file cabinets. Computers, printers, and fax machines/scanners can also be deducted. Some larger items such as computers are considered to be fixed assets and can be depreciated over time. Your Accountant can provide you with details regarding this. As always, keep receipts of all business expenses, mortgage/rent statements, electricity bills, telephone bills, etc. You need documentation to prove that a portion of your home is used for business.

Note: There are tax implications if you are going to sell your home in the near future. Speak with your Accountant regarding these implications as they involve how much money in tax you will pay when you sell your home.

Note: An exception occurs if you run a home based business that involves storing inventory or running a day-care facility in your home. You will have different business deductions. Talk with a Tax Attorney or Accountant for these situations.

Some people believe that deducting your home office expense is a red flag for the IRS. This is not true if you deduct it correctly. The key being correctly. You must meet the criteria clearly (or not so clearly) spelled out in the tax code. Your account can go over the fine points of the law with you.

So set up your home based business office and take advantage of these legal tax breaks today. The tax savings alone are worth the effort of runing a small business from your home.