Home Business Tax Deductions

For most home business owners, tax deductions may be the key that can help put a little extra money back into their pocket. Tax deductions differ from business to business but it is worth your time for you to familiarize yourself with some of these common tax deductions for home businesses.

First, determine if you qualify for a home business tax deduction. A home office is normally defined as a place where you meet with clients, patients, or customers. Or if this part of the house is used exclusively for business purposes. Almost everyone has a general idea that comes to mind whenever they hear the words “home office”. In reality, tax deductions can apply to many different places. Your home office could be a garage, basement, or even a studio. If you do qualify as a home office, it is very important that you keep all records, receipts, and paperwork that you have gathered throughout the year.  

This will make tax time a much less stressful experience for the home business owner. Do not disregard the small things. This can be as simple as keeping the receipts when you buy paper, staples, or toner. Any item that is purchased for your home business is generally considered a tax deduction. This may seem tedious and insignificant but nothing could be further from the truth.  It might amaze you when you see that all these little things add up by the end of the year.  

Home business deductions can be divided into two categories. The first is for Direct Expenses. These are the type of expenses that are needed for your actual home office. Direct expenses include office furniture, decorating costs, or equipment. Indirect Expenses consist of the expenses that must be paid the entire house. Indirect Expenses include heating, electricity, or mortgage interest payments. You can deduct the percentage of your business expenses from your utility costs.  

Another tax deduction for home business owners which you may consider is telephone expenses. If you have one telephone line, the IRS may not believe that you use this only for your home business. A second phone line installed in your home, however, is completely deductible. Another common tax deduction that is many times missed is the long distance charges incurred due to business calls.  

An overlooked tax deduction for home business owners are the meal expenses if they entertain an employee, a customer, or a client. Save all your receipts from these business 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.  

Most home business owners use a vehicle as a means of transportation for their business. This vehicle can be used for going to the post office, or meeting with a client. Keep a log book in the vehicle to keep track of the mileage on these errands. Vehicles could be vital to run your home business, and over time these types of charges can hurt your profits. There are lots of valuable tax deductions for vehicles, such as car repairs and car insurance. Airline fare can also be an expensive, but necessary aspect for home business owners. The IRS does allow your trip expense as another tax deduction.  

As you can see, home business owners have a multitude of options when it comes to tax deductions. Don't forget to keep records of all your home business activities and consult with a tax advisor so you can get the best deductions for your home business.