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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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