Many people find that one of the best reasons to start up a home business is because it allows them to have a lot more tax breaks. Other people have mixed feelings about this type of business, because it can seem to invite in the IRS auditors. Here are some of the most popular write-offs that can be used for home businesses. There are also some tips to help you claim them rightfully, to avoid headaches from the IRS.
Keep a Journal for Your Business
Tax audits are not always a nightmare, but if you don’t have the records that you need then it can prove to be very taxing- no pun intended. The best way to avoid these issues is by keeping a daily journal of your business. If you purchased something for your business, write it down and keep a copy of the receipt with it. The same is true for mileage in your car, telephone calls, and other business related expenses.
Write Off Your Office
Writing off your home office can really be helpful. This is especially true if you have an office set up in your home. You can also write off shared rooms, but you must carefully calculate the space in the home that is used for the office. This percentage will apply to utilities, insurance, mortgage and rent payments, and other expenses for your home. Just remember, don’t claim any expenses that are not related to the business- such as remodeling the kitchen area.
Update Office Equipment
Equipment that is used in your home office is completely deductible as long as you claim it the year it was purchased. The key is that the purchases must be used primarily for business purposes. There are pretty generous guidelines when it comes to this write off.
Save for Your Retirement and Stay Healthy
If you work from home, then chances are you will be paying the employer’s part of Social Security and other health insurance premiums. The good news is that you can deduct half of this at the end of the tax year. You can also write off contributions that you make into retirement plans for self employed individuals.
Talk as Much as You Want
Most businesses require them to talk on the phone a great deal. You might want to get a second line that is dedicated to your business. This expense is completely deductible. This is definitely a lot easier to do if you have a line that is solely used for business.
Similar to your telephone expenses, you can also deduct the costs of the internet if it is used primarily for your business/ While you cannot determine the exact percentage, most people find that they are only able to write off about half of it if it is also used by other people in the home.
Did you know that you can entertain clients and potential clients and actually get a tax break for it? Business owners sometimes tend to abuse this ability. The key is to keep a track of how much money is spent to entertain your clients, and how much money you actually make off of their business. This can really help you when it comes to an audit.
Take Trips Rather Than Vacations
If you plan to go on the road to help you grow your business, then you will want to make sure that you keep your receipts. Travel expenses can be completely deductible, while food related expenses can be deducted at a rate of half. Make sure that you have all receipts, including the receipts for dry cleaning and other expenses while on your trips. Also, keep the mileage written down, because it can be deducted as well.
Employ Your Family
Family members can actually be employees of your company. You can deduct the salary that they are paid as well. If you have a business that your spouse or kids helps out with, then you can use that to your advantage. You can usually get them to work for you for less than the current market rate, and you can also find lots of deductions.
#10 Make the Right Deductions
The most important thing for you to remember is to make the right deductions. You don’t want to go crazy with your deductions. Remember, at any time you can be audited for your business tax returns, and you want to be able to back everything up legitimately.