For most home business owners, tax deductions may be the key that can help put a little extra cash back into your pocket. Tax deductions vary from business to business but it is worth your time to familiarize yourself with some of these common tax deductions.
- First…determine if you qualify for a home business tax deduction. A home office is generally defined as place where you meet with clients, patients, or customers. Or if this part of the house is used exclusively for business purposes…as an example, someone who runs a Gift Basket business might use a spare room for where the supplies are kept and that person may also use this space to build the gift baskets for customers. Most people have a general image that comes to mind when they hear the words “home office”. In reality, tax deductions can apply to a variety of places. Your home office can be a garage, basement, or a studio. If you do qualify as a home business, it is crucial to keep all records, receipts, and paperwork that you have accumulated through the year.
It will make tax time a much less stressful experience for the home business owner. Do not overlook the small things. This can be as simple as keeping the receipts when you purchase paper, staples, or toner. Any item that is purchaes for your home business is usually considered a tax deduction. This may seem tedious and unimportant but nothing could be further from the truth. You might be amazed when all these little things add up at the end of the year.
- Home business deductions can be separated into two categories. The first is for Direct Expenses. These are expenses that are needed for your actual home office. Direct expenses include office furniture, decorating costs, or equipment. The other category is Indirect expenses which are the expenses that must be paid for the entire house. This includes heating, electricity, or mortgage Interest payments, rent, etc. You can deduct a percentage of your business expenses from your indirect costs such as these, because these indirect expenses are shared for personal reasons too.
- Another home office tax deduction to consider are telephone expenses. If you have one telephone line, the IRS is usually not going to believe that you use this only for your home business…but again…because it is a shared expense, you can deduct a percentage. Some home businesses have a second phone line installed, in a case like that, this second line expense is 100% tax deductible. (This can also apply to your cell phone.)
- An overlooked tax deduction for some home business owners are the Meal expenses when they entertain an employee, a customer or a client. Save all your receipts from these business lunches and dinners. It is possible to deduct fifty percent of meal expenses.
Education expenses can also be a tax deduction if it is required by law to update your skills or if you are trying to enhance your skills for your current position. As an example, some hair stylists and barbers often independently take hair cutting classes or take a class to learn a specific skill. The cost to attend those workshops and any travel involved would be tax deductible.
- Most home business owners use a vehicle as a means of transportation for their business. This vehicle can be used for running to the post office, or meeting with a client as well as running other business errands or if you’re a child care provider that uses your car to take the children on outings. Keep a log book in the vehicle or download an app like MileIQ to keep track of the mileage on these auto trips. Vehicles can be vital to run your home business, and over time these kinds of charges can hurt your profits. There are many valuable tax deductions for vehicles, such as car insurance, car repairs and maintenance like car washes.
Airline fares can be another costly but necessary aspect for home business owners. The IRS does allow your trip expenses as another tax deduction.
As you can see, home business owners have a variety of options when it comes to tax deductions. Remember to keep records of all your home business activities and consult with a tax professional who specializes in working with home business owners in order to get the best deductions for your home business. Remember that not all tax professionals are created the same.
If you are looking for an extensive list of home business and small business tax deductions, you may want to download my Home Business & Small Business Tax Toolkit.