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Home Based Business Tax

If you have a home based business you may be eligible for home based business tax deductions.

Home Based Business Tax Deductions

If you operate a home-based business, make sure you are aware of the potential tax deductions you may be entitled to. For business purposes, it is irrelevant if you work full time or part time in your home. If you engage in any activity to make a profit and that activity earns money in three out of five consecutive years, then you are considered to be operating a business. There are many deductions you may be able to take that will reduce the amount of tax you owe or may even entitle you a refund depending on the amount of tax you owe and whether or not you paid any of your taxes in advance, such as quarterly payments. The use of your home, utility expenses for your home-based business, office supplies, equipment, and advertising are just a few of the deductions you can legally take each year in which you operate a business from your home.

IRS Form 8829, "Expenses for Business Use of Your Home" will take you step by step through each category and calculation in regard to the business use of your home and will prevent you from making mistakes. If you operate your business as a sole proprietor, you will be required to use this form to take the deductions you may be entitled to. Before you do your tax return, it is a good idea to measure your home office. Your deduction will depend on what percentage of your home is used as an office. Measurements should be taken in square footage, both of your entire home and that of your office space. In taking all the related deductions, you will be deducting a portion of your rent or mortgage, property taxes, and your utilities. These deductions can help a great deal in offsetting the self-employment tax.

You will need to keep detailed records in regard to your business expenses and keep the business portion of your home as isolated from the rest of your home as possible. In the event of an audit by the IRS, you will want to have your business activities completely separate from your home to avoid confusion and questions about your deductions. If you use your computer for both business and personal purposes, keep track of how much time you spend working on your computer for business reasons as opposed to the time you spend with personal activities. You do not have to have a separate computer for your business, but make sure you come up with an accurate percentage of the time your computer is used strictly for business reasons.

You cannot simply set up a computer in your living room and work a couple hours per week and expect to take tax deductions for a home-based business. You must keep business and personal space separate and keep accurate records of all your business activities. The deductions you may be able to take will be well worth your effort when tax time rolls around. Keep in mind that your tax deductions cannot exceed the amount of money you earned in any given year. Any business losses that remain can be carried over to the next year, up to three years. If your home-based business earned no money last year, your expenses can carry over to the next year as well. You will not be able to get a tax refund for your home-based business due to expenses alone.

Check into the possible deductions you can take for your home-based business. You will be able to follow the IRS instructions easily when you use Form 8829 and you can reduce or the amount of taxes you owe on any income earned from your business activities.



>>> Possible Home Business Tax Deductions

>>> Self Employment Income Tax

SBA
The Small Business Administration (SBA) is available to assist small business owners. They specialize in offering training and educational programs, as well as, many other helpful services.

The following information is just an overview and rules may change. Please consult a tax professional for any tax questions you may have.