Whether you telecommute, work as a freelancer, or own a business that you run from your home, you have a cost to running your business, and the IRS recognizes many of these costs. Before preparing and filing your tax return you will want to take a close look at possible deductions to find out which ones apply to you. Manny Davis, Tax Advisor at All Business, has shared 20 expenses that may be deductible if you run a home-based business:
- Rent Payments: If you rent the place where you live and you have a dedicated room that is used specifically for your office, you may be able to take this deduction. If however, you have a desk set up in your kids play room, you won’t qualify for the deduction. Additionally, you must show proof that your home office is the primary place you conduct your business. There are many methodologies to take this deduction, typically you take the square footage of your work area and divide by the square footage of your home.
- Mortgage Payments: If you own, you may be able to take your mortgage payments as a deduction. You must meet the same qualifications as mentioned above for taking rent payments as a deduction.
- Renters/Homeowners Insurance: If you qualify for the home office deduction then you are allowed to deduct the equivalent percentage that your home office is to your entire home.
- Electricity: Electricity is an indirect expense that is shared between your home and your office. You are allowed to deduct the equivalent percentage that your home office is to your entire home.
- Water: Like electricity, this is an indirect home expense and can be deducted in the same manner as electricity.
- Gas: If you use gas to heat your home, this is considered an indirect expense and can be deducted in the same manner as electricity is deducted.
- Home Repairs: If the repairs that are done are to the portion of your home that is solely dedicated to your home business you can take the entire amount as a deduction. If the home repairs are indirect to the home office it is a possibility that you can deduct the percentage that represents the portion the home office makes up of your home.
- Phone Charges: If you have a dedicated phone in your home or a dedicated cell phone just for business purposes, all charges can be deducted. If you use your regular home phone or cell phone for business related calls, you can deduct a portion of your bill.
- Office Supplies: Any supplies you use for your business like paper, pens, ink cartridges, etc are all a deductible, just be sure to hold onto the receipts.
- Furniture: If you have to purchase furniture like a desk, filing cabinet, etc. you can deduct the cost of these items if they are used in your office. Again, be sure to keep receipts.
- Equipment: Items needed to run your business like computers, laptops, fax and copy machines and more are all tax deductible as business expenses. Be sure to check with your accountant about depreciation rules on these items since many can’t be entirely deducted they year they were purchased. It is a possibility to take the full deduction the year the purchase was made if the asset qualifies for section 179 deduction.
- Cleaning Services: If you have your entire home cleaned, including your home office area, this amount can be deducted by using the equivalent percentage that your home office is to your entire home. If you only get your home office area cleaned, then the entire amount can be deducted.
- Home Security System: If you qualify for the home office deduction, this expense is considered an indirect expense to your home office and a percentage of the expense can be deducted. You can deduct a percentage of the initial installation as well as a percentage of the monthly security monitoring fees that are incurred.
- Computer Software: Any software you need to help run your business in a tax deduction.
- Internet: Most home businesses today require the use of the internet. You can deduct the percentage of your bill used for your business.
- Professional Subscriptions: If you pay for any industry related subscriptions, you can deduct the cost paid.
- Education and Training: You can deduct some education and training expenses.
- Car Expenses: If you own and exclusively use a separate vehicle for your business, then you can write off that vehicle. If you use your personal vehicle you can deduct mileage. If you plan to deduct mileage, you will want to do so with extra care. Keep a notebook in your car and document everything from the miles you drive to where you were going, tolls paid, etc.
- Travel and Meals: If you need to travel for your home business you can deduct some travel expenses including airfare, rental cars, meals and lodging.
- Insurance Premiums: If you are self employed and paying your own insurance premiums this is another deductible cost.
If you are a home business owner, you can see that there are numerous potential deductions you can claim on your tax return. If you have any questions on whether or not you qualify for a particular deduction or how to claim any of the above listed deductions be sure to check with a tax professional.
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