If you have an extra room in your home where you store
gobs of “things” and “junk” that the family will use at some future time, you
should think about refitting the room into an office for your home
based business. There are many advantages to running a business
out of your home.
One of the major benefits of a having a home based business is the tax advantage.
By changing a room in your home to a business office, you can qualify to
deduct some basic household expenses into legitimate business expenses. The home
computer that requires monthly payments can pay for itself when
you use it as a business tool for your home based business.
A simple calculation will show you the basic savings advantage of using a
room in your home for a home based business. Start by calculating
the percentage of the house that you will use for your business.
If the total house is 1200 square feet and there are 5 rooms in the
house, you can safely assume that approximately 10% of the home‘
will be used for business. If your mortgage payment is $1200 than
you can deduct approximately $120.00 per month for the home business
deduction. That is an instant deduction of over $1,200.00
In order to qualify for some business deduction, you must have the
intent of making a profit. The time that the IRS gives small business
owners to show a profit are usually 5 years. You can meet this qualification
if you make a profit in any 2 year period within the 5 year period.
You should always consult with a tax professional who understands
the tax code as it relates to a home based business. Seek out a competent tax
accountant to get the maximum tax savings and deductions for your small
businesses.
But the standard deductions that large Fortune 500 companies
use can be utilized by small home based business owners. The Government
provides some of the same tax deductions for small businesses that large companies
enjoy.
There are some caveats to using a room in your home for your home
based business. To meet the eligibility requirements for a home based
business, the room designated for this purpose must be used exclusively
for the business.
You can not allow the kids to watch TV or play bumper pool in this room
during off hours. The room must be used exclusively and regularly as the
primary business location.
However the positive news is that you can deduct
basic business expenses such as office supplies, including paper, ink refills
for your printer (which can be very expensive)and anything related to running
your business. If you subscribe to trade magazines that have something to
do with your business, this is a qualified deduction.
Other business expenses that are standard are:
- Business use of your car or truck (mileage can really add up)
- Percentage of your utilities
- Tax consultant, bookkeeper
- Magazines and books
- Software that you purchase to run your business
When you establish your home based business, you will use Schedule C, Profit
(or Loss) for Business or Profession form to claim your business deductions.
Even though the IRS states that claiming business-at-home deductions will
not trigger an audit, it is better to be doubly safe and maintain excellent
records.
Always consult with a qualified tax preparer so they can provide you with
excellent insight into keeping the records for your home based business.
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Ken Shorey is owner/webmaster of EZ-Work-At-Home.net. Visit his site for legitimate Work At Home Ideas and Opportunities.