There are several tax advantages for home-based businesses. The largest tax advantage of a home-based business is the home office. A home office or any area in your home that is used frequently for business-related work will qualify for a tax break. According to the IRS, a home office must satisfy at least one of the following conditions in order to qualify as a tax write-off:

• The office must be your primary place of business.
• You meet with your customers and clients in this office.
• It is still considered part of your house, even if it is not physically attached.

For individuals that are renting their home or apartment, they too can qualify for the deduction. A portion of your rent (usually 10 percent) can be deducted that equals the size of space used to operate your home-based business. Any home repair costs also can be deducted if they were done for your home-based business. The IRS only allows deductions for the repair and maintenance of the area used for your home-based business. In order to determine the amount of space being used for a home-based business, you must determine the square footage of your office, and then divide it by the total livable space in the home.

Another thing you can deduct from your taxes is the utility costs used to upkeep the home-based business. One way to figure the utility cost is to figure out what your utility bill would be if you didn't work from home. If no one would be at home during the day, the furnace or air conditioning might not be running or it may run at a lower temperature. The lights in the home probably wouldn't be on also and the computer or other electrical items would not be running. Calculate the amount of energy they use and deduct this amount from your taxes. In order to figure this amount, you must document the amount of time you spend working in the office and then figure out how much of your utility costs were spent during this time. A portion of your electric, gas, water, and sewer bills can all be deducted from your taxes. If you use the garbage for business use, you can also deduct a portion of this bill.

Never go overboard with your deductions, the IRS is very specific about the use of the office space. If you have a 5' x 5' room, everything in that room must be used for the business. For example, a bookshelf or closet cannot be used to store personal items like winter clothing, decorations, or other personal items. That space must be taken out of your office space and cannot be included in the deduction. Because many home-office users abuse this deduction, they are commonly red-flagged by the IRS. If you are eligible to claim this deduction, you must fill out IRS Form 8829 and include it with your tax return.

Whenever you decide to set up your home-based business, you will inevitably spend money to do so. If you purchased items with cash and you don't have a receipt, underestimate its value so you don't get in trouble with the IRS if you are audited. A personal computer generally is deducted from most home-based business owner's taxes. One important thing to remember with a computer deduction is the amount of time that is spent on the computer for business use and the amount of time that is spent on it for personal use. Perhaps you use the computer for 60 hours of work per week, but you spend 4 hours on it a day for personal use. Keep a log of the amount of time that is used for business use and the amount that is used for personal use so you can deduct the appropriate percentage from your taxes.

In order to deduct a home-office or a computer, you must use them on a regular basis to conduct your business. Your home office must be used to conduct most of your work in, but you can still claim deductions if you perform some of your work out of the home-office.

One large advantage home-based businesses have over traditional business is the ability to deduct driving expenses. You can deduct the expense of the first mile you drive away from your home for business-related purposes. One way to capitalize on this deduction is to plan your errands around your driving expenses. For example, if your home-based business includes a post office box, you can deduct the gas and oil expenses it takes to drive there, even if there are additional stops along the way. You must keep track of every mile you drive because the IRS will pay an allotted amount per mile. According to the IRS, there are several expenses that can be deducted from driving:

• Gas and oil expenses
• Parking and garage fees
• Auto depreciation and repair fees
• License and registration fees
• Leasing payments and insurance costs
• Toll fees

If you do not have a car, but still travel for your home-based business, you can deduct taxicab fees or bus fare. If you travel by train or plane, you can deduct this amount as well and you can also include the hotel bill, food expenses, phone calls, and dry cleaning bill. Another deduction amount you can include is the shipping cost of presentation materials. If you cook a meal or go to dinner, you can write this amount off as long as it is business-related.

Insurance expenses can be deducted for your motor vehicle as well as medical insurance. If you have any credit expenses or bad debts, those too can be deducted. Disaster insurance, theft insurance and malpractice insurance coverage can all be deducted. Any medical expenses, including out of pocket expenses, can be deducted.

Another qualifying tax deduction is telephone expenses relating to a separate business phone. A home telephone does not qualify because it is also used for personal use. Any office equipment such as a desktop or notebook computer, printer, copier, fax machine, scanner, camera, calculator, and other items can all be deducted if they are used exclusively for your home business.

Any furniture used for the home-based business such as an office chair, filing cabinets, desk, lamps, and other things can all be deducted from your taxes. Pens, paper, file folders, tape, calendars, planners, dictionaries, and other office supplies can be deducted from your taxes.

There are also deductions for retirement plans. Any contribution you make toward a retirement plan can be written off on your taxes. The IRS recognizes certain pension plans:

• Simplified Employee Pension (SEP) plan
• 401(k) plans
• Simple IRA

If you do not have a retirement plan and you are thinking about getting one, you may qualify for a 50% tax credit on the first $1,000 of the set-up costs.

One expense to keep track of is your bad debt expenses. If you have customers that are unwilling to pay or clients that are unable to pay, you can write this amount off as a bad debt expense. If the amount was previously reported as gross income, you will have to wait till tax season to deduct it. Another deduction you can claim is the interest amount you pay on a loan that helped to start-up or maintain your home-based business.

Any legal or professional fees can also be deducted from your taxes. If you have a lawyer or an accountant that provides you services directly related to your business, you can deduct their expenses from your taxes. Any mail that you send can be deducted, the cost to purchase the envelopes, and the stamps or other postage amounts can all be written off. The mailings must be related to your business in order for them to qualify as a tax write off.

If you pay a graphic artist to design a logo, the design fees can be written off. The cost to print letterhead, business cards, envelopes, logo-based advertisements, pens, pencils, and anything with your logo on it can all be written off.

In order to protect yourself from an audit, you must keep receipts of everything you are writing off as a business-related expense. If the IRS decides to audit you, they will want proof of everything that was written off. The tax laws are complex and home-based business expenses that are claimed on taxes are automatically red-flagged by the IRS because so many people have abused them.

Always check the current tax laws before you start writing off business-related expenses. The tax laws change all the time and they are becoming stricter with home-based business tax write-offs. Everyone that owns a home-based business should consult a tax accountant or tax advisor before they file their taxes. Understanding the tax laws can be complicated and without proper knowledge and experience, you could end up being audited. The tax accountant or tax advisor will be able to make sure you have legitimate deductions and help you prepare the proper forms for home-based business deductions.