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Sunday, March 12, 2006
Tax Benefits of Home Based Businesses
A big advantage of working at home is the tax benefits of operating a home business. Working from home allows you to deduct portions of bills that you are already paying to live there.
You can deduct home expenses if you actually work in your home. It is easiest to do this if you have a room set aside solely for the business. Figure out how big that room is in proportion to the house, and you can deduct some expenses using that percentage.
For example, if your place of doing business takes up 5% of your house, you can deduct 5% of your heating expenses for the days you work. (In other words, if you do not work on weekends, you cannot deduct for weekends.) You can deduct items such as mortgage interest (though not your mortgage itself), electricity, telephone, insurance, and expenses for maintenance and repair. In general, you can deduct the percentage of expenses that directly relates to your business.
You can deduct costs for your internet service provider in proportion to the amount you use it on business, too. If it is used completely for business you can deduct it all, but be certain before you do this that you are not using it for other reasons. Do not forget the other business costs such as office supplies, furniture, software, subscriptions, or other equipment, if these items are used exclusively for your home business.
If your business requires you to leave your home office, you can deduct the cost of travel, mileage, meals, entertainment, and anything else that goes along with the cost of living on the road. During the year, make sure you keep documentation of your mileage and the cost of lodging, food, etc.
What about the bigger ticket items? When making home business tax deductions, you can also take into consideration insurance premiums (if you are self-employed and pay for your own insurance), the money you deduct for retirement, and half of what you pay towards your social security. And if your children are seventeen or younger and are working for you, you can deduct their salaries as business expenses.
The tax benefits of operating a home based business enable you to deduct things you would otherwise be paying in full. If you are considering a business from home, it's a good way to lower your costs. This is just one more advantage of working from home.
Sources:
http://www.irs.gov/faqs/faq-kw82.html
http://www.bankrate.com/brm/news/biz/tax/20011022a.asp
About the author:
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