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One of the major advantages of being self-employed or having your own home based business is that there are many allowable deductions that you can claim against your tax obligations to the federal government. These can all be found, itemized, on the website of the IRS. What is important is to make sure you document all your business-related expenses and to have them documented properly. Since a lot of small businesses get audited, and the rate is rising dramatically in recent years, keeping in mind the following top 10 home business tax deductions may help you avoid paying additional taxes and go through the audit process quickly and confidently.
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Top 10 Home Business Tax Deductions
One of the major advantages of being self-employed or having your own
home based business is that there are many allowable deductions that you can
claim against your tax obligations to the federal government. These can all be
found, itemized, on the website of the IRS.
What is important is to make sure you document all your business-related
expenses and to have them documented properly.
Since a lot of small businesses get audited, and the rate is rising dramatically
in recent years, keeping in mind the following top 10 home business tax
deductions http://frankguttacpa.com/tax-tips/top-10-home-business-tax-
deductions/ may help you avoid paying additional taxes and go through the audit
process quickly and confidently.
1. Home Office Space – If you are devoting part of your home
exclusively for the use of your business operations, you can allocate a certain
percentage of the total area of your home and deduct it from your taxable income
as office space. The IRS allows specific calculations for the allowable deduction.
There are businesses, however, that require the actual acquisition prior to using it
as a business office. Make sure to check the applicable regulations for your
industry before operating the business to avoid disqualification from claiming the
deduction.
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2. Health Expenses – All medical-related expenditures for individuals
not covered by group insurance are allowed by the IRS for deductions. If the
insurance deductible exceeds $1,000, the insured may set up a heath savings
account. The amount must be set aside prior to the payment of taxes to pay for the
deductible, prescriptions, and other health expenses outside of the insurance
coverage.
3. Insurance Premiums – Premiums paid to cover persons ineligible for
group insurance can also be used as tax deductions if they can be supported with
valid receipts. Car insurance premiums are also allowed provided you can show
records that can clearly show official use of the vehicle for the business such as
odometer readings for the tax period. The IRS rarely questions well-supported
records. This is one of the top 10 home business tax deductions that people
usually overlook.
4. Utilities and Services – You can claim as deductions the phone lines
exclusively used by the business. This will also include installation, monthly
service fees, and long distance charges. If you are using your cell phone
exclusively for business purposes, you can also deduct the entire bill from your
taxable income from business. Otherwise, you can only deduct the portion of the
charges attributable to the business. The power and water charges can be pro-rated
between home and business use, and the portion for the business can be claimed as
a deduction.
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5. Casualty Losses – According to the IRS, loss of business income
arising from equipment loss, damage to the office, and cost of repairs are allowable
deductions. If necessary, you may consult a tax professional to determine which
taxable year the claims can be made, especially when the expense extends beyond
one year. For tax purposes, actual receipts are required and mere cancelled checks
will not do. Be careful in making your claims as the IRS can sometimes be strict
in this area.
6. Car Expenses – You can deduct mileage based on the federal rate
established at the start of the taxable year as a percentage of the total mileage
covered within the year. Again, proper recording of actual trips made must be
observed, which may later be required for presentation to the tax auditor.
7. Travel Expenses – The IRS understands the importance of business
trips and therefore allows related expenses for deduction. However, proper
recording must be maintained as the IRS will question and may disallow expenses
that seem to be incurred solely for pleasure and personal benefit. Make sure to
provide sufficient documentation for expenses that at first glance may seem like
personal and not business-related expenses to avoid disallowances for valid
expenses.
8. Computers, Software, and Supplies – Depreciation for the office
equipment can be claimed as deduction from annual taxable income. Different
rules apply for claiming deductions for capital equipment, furniture, and software;
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and for consumables or supplies. The IRS website provides more details about this
particular allowable deduction.
9. Moving Expenses – When your business grows or expands, the home
office may be outgrown and may require moving to a bigger office space. The cost
for moving in to a new rented or owned office is allowed for deduction. However,
if the entire family is moving to a new home, a particular portion of the moving
cost pertaining to the business may be allowed under certain IRS rules.
10. Research Materials – Training manuals, videos, subscriptions, and
books can also be allowed as valid expenses. Keep official receipts that will prove
that the materials are really essential for the business operations.
The key to hurdling tax examinations and audits is the presentation of clear
and well-maintained business records, this cannot be emphasized enough and
doing so allows for safely using aggressive deduction strategies.
Additionally, this will make the job of the tax examiner a lot easier, and it
will give him the impression that you have nothing to hide especially when the
basis for the deductions you are claiming can clearly be seen. He can then be more
lenient and may just opt to overlook small lapses you may have committed. For
further information on the top 10 home business tax deductions, refer to the IRS
website or your certified public accountant.
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