As tax day approaches, most home business owners are desperately seeking ways to reduce their tax burden.
If you’re like most small business owners who work out of their home, you probably make enough to get by–but not a whole lot more. In any case, you are still subject to the whims of the taxman.
Following are a few tax tips for home businesses:
Keep Accurate Records.
A good rule to follow–no matter how large or small your business may be–is to keep accurate records of income and expenses.
Working from home can be relaxing–no set hours or putting up with a boss looking over your shoulder. As long as you get done what needs to be done, and in a timely manner, who cares what hours you keep or how you look when you’re doing it?
That relaxed atmosphere shouldn’t lead to haphazard bookkeeping methods. It is not only a good business practice to keep your books up-to-date; it will save a lot of headaches when it comes time to do your taxes. Everything will be available and organized.
Tax Deductions are Available
Working from home has a lot of advantages. Not having to commute back and forth to work saves not only time, but money as well. Other advantages include being your own boss and being able to set your own hours.
In addition, working from home allows you to claim a part of your typical household expenses as business expenses, meaning they are tax deductible. In fact, whatever you use to produce your product is a business expense.
Home Office Expenses
You are allowed to claim tax deductions for your home office. The expenses associated with running a home business include the space you set aside as an office.
For tax purposes, a home office must be an area in the home designated specifically for running the business.
If you run your business from a certain area, but it’s only used for business purposes part of the time, then that will diminish the percentage of the expenses you can claim as a tax deduction. So if you use a portion of the home as an office, and don’t use it for any other reason, the percentage that is tax deductible will be larger.
Because part of your home is being used as a home office a percentage of your household expenses are considered legitimate tax deductions.
Ordinary expenses associated with maintaining a home, such as rent, insurance payments, heating and electric bills, or routine maintenance, such as roof repair or a broken window, are all allowed as tax deductions–in part.
Additional Business Deductions
Typical office expenses, such as computers, fax machines, and telephones, along with paper, staplers, and other office necessities are additional business deductions.
Any paraphernalia you may use in the operation of your business, such as tools and material to build items you sell via the Internet or through brick and mortar businesses, are tax deductible–as is the shipping material and postal expenses required to get your product to market.
Other deductions include office furniture, like chairs and desks as well as any display material if you sell to clients in your home office.
Find a Good Accountant
Many of the above suggested tips are based on specific tax rules and regulations, which are in a constant state of flux.
Most home business owners are ill-equipped to keep up with these changes, so it only stands to reason that you should find a good accountant to make sure you’re not only abiding by the rules, but that you take advantage of every legal tax deduction.
Once you find a good accountant, make every effort to maintain their services for as long as you can. The main reason for this is that the better acquainted an accountant is with your business, the better able they will be to make sure you get the best tax rates.
You Don’t Have to Be Full-Time
Even if your home-based business isn’t a full-time endeavor, you’re still entitled to take legitimate tax deductions.
The IRS recognizes that part-time businesses are entitled to tax benefits as long as the business is ongoing.
Make It a Family Business
In order to function as a home business, many work-at-home enterprises require more than one person to make them profitable.
If you need help producing your product, or delivering it to market, or simply want a break now and then, you may want to consider hiring family members to work for you. Whatever amount you pay to them stays within the family that way, and the wages are tax deductible.