The Top 10 Home Based Business Tax Deductions
Home based business tax deductions are not exactly awe inspiring to write about but understanding them is a necessary part of being a home based business owner.
I recently sat down to organize my tax information for my home based businesses. These include my mlm , internet marketing and also my art sales. I can tell you it’s much easier come tax time if you are organized and keep good records throughout the year. Unfortunately for me I procrastinated even after much encouragement (nagging) from my husband who is the world’s most organized former boy scout.
Do as I say and not as I do………. get organized!
After last year’s tax experience my accountant set up a spread sheet for me. She knew I needed help! I confess even with the spread sheet handed to me on a silver platter I was not consistent with the data entry. It seemed like such a mundane non revenue producing activity and I had plenty on new exciting areas to keep me preoccupied.
As penitence, I spent the better part of yesterday organizing and compiling the mountain of receipts, invoices sales and check stubs. yikes! I paid for my avoidance and catching up definitely gave me a headache!
Tip numero uno don’t wait till the last minute!
I needed a blog post and wanted to share something useful. The Tax Man is just around the corner so I did some research on home based business tax deductions and this is what I came up with. Please keep in mind I am not a tax expert. Below is a general list of home based business tax deductions.
Please consult with a qualified CPA for your personal deductions.
Here’s the good news: A home based business can reduce your taxes while building your income !
Important: Open a separate bank account for your business!
Remember your business must be defined as a business and not a hobby.
The IRS presumes that an activity is carried on for profit if it makes a profit during at least 3 of the last 5 tax years including the current year.
Here are 10 Home Based Business Tax Deductions
This can be one of your biggest home based business tax deductions. Defined as any space you use regularly and solely used for your business. This also includes your restroom. You must measure your home’s square footage and then your office square footage. Calculate the percentage. Example: If your home is 2,000 sq. ft. and your office is 400 sq. ft. then you are allowed 20% deduction from your
- mortgage’s or rent
- repairs and maintenance
- real estate taxes.
- utility bills
It’s recommended you put together a log and keep up with these expenses month to month.
2. Office Supplies
It’s a good idea to keep an agenda calender for documentation or some kind of daily record of your business activities for these home based business tax deductions.
- Computer software
- business subscriptions
- starter kits
- internet connection
- business and promotional materials
- books and magazines directly related to your business
3. Phone and Internet
You can deduct your business phone, fax and internet expenses. Only deduct the expense directly related to your business. If you only have one home phone only deduct that portion related to your business but if you have a second phone specifically for your business then you can deduct 100%.
4. Furniture for your office.
The standard mileage is the easiest because it requires minimal record-keeping. Keep track of the miles you drive for business and the dates. Multiply the total miles by the standard mileage rate and that is your deductible expense. Check with your CPA for the mileage rate for 2012.
Tip: I have a booklet I keep above my sun visor to track this.
6. Travel and Expenses
Travel such as air fare and hotels are good for your home based business tax deductions. It is so important to get to some of the meetings related to your business, there is magic in these events, by all means go!
For dinners, to qualify you must conduct business with the person you are entertaining. These expenses are 50% deductible. Also included in this category are ticket to sports event, cost of a golf game and the cost of the a meal with beverages , tax and tip. You will need very good records for this.
7. Health Insurance Premiums
If you pay for your own health insurance premium and not eligible to participate in your spouse’s medical plan, you can deduct all of your health, dental and long-term care insurance premiums. You can also deduct premiums paid to cover your spouse and dependents.
8. Interest on Business loans and Business Credit Card Interest
9. Social Security
The bad news. If you are self-employed you have to pay double the Social Security contributions. The federal law requires the employer to pay half and the employee to pay half. Self employed workers are both. The good news is you can deduct half of the contribution on your 1040.
10. Self-Employment Retirement Plans such as 401 (k)s
It’s always a good idea to contribute to your 401 (k) and other retirement funds. Remember they are tax deferred which is always great.
There you have it. Like I said I am not a CPA or expert in home based business tax deductions but wanted to share with you what I learned from my research while looking at this subject.
The key is to keep good records and document all of your business activities. Talk to your CPA for a more detailed explanation of these deductions. Develop a spread sheet or have someone do it for you. Just make sure you keep track and do this monthly. Don’t wait like I did to do it all in one sitting.
Doing the data entry on a monthly basis for your home based business tax deductions also has another benefit it lets you track your progress in your business.
It’s always a good idea to start the new year with a budget for your home based business. As you keep tract of where you are you can see if you can afford to buy another new course or e book or what ever shiny new ball is floating around in cyberspace.
By taking these steps you can measure the progress you are making in your home based business from month to month and year to year.
I hope this blog post was helpful for you. I would love to hear what your experiences have been with doing your taxes as a home based business owner. Have you had any surprises and have you seen the benefit of these tax deductions?
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