Qualifying for Home Based Business Tax Deductions

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Do You Qualify for Home-Based Tax Deductions?

New changes in the tax laws have made it easier than ever to claim Home Office Deductions and keep more of what you earn. If your home is a place of business, many of your personal expenses can be deducted as business expenses resulting in lower taxes. You may be thinking, “I have an Accountant/CPA/Tax Preparer/Tax Software who knows all about tax deductions, so I don’t have to know anything about them.”

Understanding Congressionally Authorized Deductions for Home-Based Businesses.

There are several reasons why that thinking could be costing you thousands of tax dollars. Some of those reasons are:

A Guide to Tax Deductions for Home-Based Business – U.S. Chamber: 
You can go by the percentage of your home which is being used for business.
For example:
-if your office was 75 square feet
-and the total area of your home is 1,000 square feet
-the calculated business percentage would be 7.5%.)

Qualifying for Home-Based Business Tax Deductions

To qualify for these deductions, you must meet 2 conditions, which most, if not all, Internet Marketers meet.

Condition 1: Using Your Home Workspace for Business

Do you work as an Internet marketer out of your home (on your home computer)? To qualify for deducting expenses related to using a workspace for business in your home, your home must be:

  • Your “principal place of business” or you must use the space only to earn your business income.
  • Use it on a regular and ongoing basis to meet your clients, customers, or patients.

Condition 2: Intent to Make a Profit

Are you in business to make a profit? Whether you made a profit or not is immaterial. Even if you lost money but intended to make a profit these deductions are still available to you. If you answered yes to both of these questions then you do own a Home-Based Business and as such you are qualified to deduct Business Assets, Direct and Indirect Expenses.

Deductible Business Assets for Home-Based Businesses

Business Assets include business equipment such as computer, fax machines, business furniture such as desk (your dining room table for instance), desk chair and filing cabinets. These are 100% deductible if they are used “exclusively” for business purposes.

If these assets are not used “exclusively’ for business the amount you can deduct is proportionally related to how much these things are used in your business. It is possible to deduct a portion of your living room, sofa, DVD player etc if you meet certain conditions.

Direct Expenses: Deductible Costs for Running Your Business

Direct Expenses are those directly related to conducting your business. This would include office supplies, telephone service, cellular phones, ISP service, hosting, advertising etc. Direct expenses are generally 100% deductible.

Indirect Expenses: Deducting Personal Expenses for Business Use

Indirect Expenses include such things as rent on your home, utilities including heating and air conditioning and general repairs such as replacing a roof or repainting the exterior of your home.

These are authorized legal deductions passed into law specifically for Home-Based Businesses by congress.

Benefits of Consistently Saving Thousands on Income Tax Each Year

If you use your home for business purposes, many of your personal expenses can legally be converted into deductible business expenses including utilities such as heat and electricity, cleaning materials, house insurance and property taxes.

“I’m proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money.” – Arthur Godfrey

About the Author

By Karin Workman, A 30-year veteran Home-Based Business Owner who specializes in Tax Preparation for Home-Based Businesses. Karin also wrote the Hot New E-course: “Reap the Rewards!” Designed to help you save tax dollars and put more money into YOUR pocket.

Learn all you can about what you can deduct and you will consistently save on your income tax each year.

Even though these deductions are legal and authorized by Congress, it is still important to keep accurate and detailed records of your business transactions as well as its assets. You want to be able to justify your deductions and avoid any future issues with the IRS. I’d also recommended consulting with a tax professional or accountant to ensure that you are taking advantage of all the deductions available and avoiding mistakes or oversights when filing your taxes.

FAQs

Can I write off my home workspace for business tax deductions?

Yes, if you use the space regularly and exclusively for business purposes. If your home is your principal place of business or only space you earn your business income.

What expenses can I deduct for my home-based business?

Any expenses related to business assets, like computers or furniture. Also, direct business write-offs like office supplies, phone service, and advertising.  Other indirect expenses like rent, utilities, and general repairs can be proportionally related to your business and therefore result in deductions.

Do I need receipts to claim home-based business tax deductions?

Yes, keeping accurate and detailed records of your business expenses and assets, including receipts and invoices will justify your deductions and avoid any issues with the IRS.