The Tax Benefits Of A Home-based Business
According to the U.S
According to the U.S. Bureau of Labor Statistics, 4.12 million American entrepreneurs are operating their businesses at home. These home-based businesses include anything from home-based accounting firm to home-based food catering service and even to day care service. The advancement in telecommunication technology allowed the home-based business boom, which gave many individuals the benefits of a home-based business.In general terms, there are two benefits of a home-based business: lifestyle and financial freedoms. Lifestyle freedoms include working hour flexibility, convenient working arrangement, etc. and financial freedoms include increased income possibilities and tax deduction opportunities. Many home-based business owners fail to exploit in full the tax deduction privilege given to them by the IRS in the conduct of their home-based business. So this article will focused on these tax deductions to help home-based business owners boost income.
Home Office Deduction
Don't think that since you're doing business at home, you're no longer entitled for home office deductions. Provided that you dedicate a single room entirely for the conduct of your business (meaning no other personal purpose as a living room), your initial and subsequent improvement costs for this room are deductable from your gross income.
Mortgage Interest, Proper taxes, and Insurance
If you're paying a mortgage interest for your house, a part of this mortgage (equivalent to the space percentage of your home office) is also tax deductable for your business. The same calculation applies toward the property tax and rent payment. And if you're paying home owner's insurance, you can also deduct some percentage equivalent to your home office from your gross income.
Utility and Transportation Expense
Although you can't charge your home's entire utility expenses, you're still entitled for utility expense deductions for your home office: business calls, light, water, cleaning, etc. If you commute from your home office to meet a client or do business, you're also entitled for mileage deductions. Keeping a log of your mileage and some proof of meetings are necessary for this purpose.
Furniture and Fixture
If you're buying furniture and fixture for your business space and use, then the expenses incurred are tax deductable for your business also provided that you would not use the furniture and fixture for personal family use.
To avail of these deductions, however, you need to keep records or proof of the expenses including the part of your home used solely for business. You must also prove that you have no other office or place you conduct business in except the one you have at home. These records of proof must be kept within 3 years from the date they were filed and 2 years after the tax was paid. The reason most entrepreneurs fail to avail of these benefits of home-based business is that they don't know what deductibles they are entitled to or they fail to keep records of proof. Know your full rights as a home-based business owner because the IRA would not lay down all these for you; be proactive to progress your business.
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