Sometimes it seems like every other television commercial or online ad is encouraging you to start your own home-based business. If you have embarked on the work-at-home adventure, remember to take advantage of the tax saving opportunities it can offer.
Furniture, Computers and Supplies
In most homes, computers and the Internet are used for playing games, shopping, etc. But in the home office, the computer and the Internet are truly the workhorse. Home-based businesses are dependent on computers and printers to do a myriad of tasks, from ordering products to keeping the books. Computers and peripherals used strictly for business, along with associated supplies and programs, are fully deductible.
Since computers, telephones and other equipment typically sit on desks or other pieces of furniture, donÂ’t forget to deduct the cost of these items as well. Just be careful to document their business use.
Internet and Telephone Service
In the same way that computers and other equipment are deductible, so are telephone and Internet service. In the case of the phone, the first line coming into your home is assumed to be used for personal reasons and thus not deductible. Second lines and fax lines can be fully deductible if they are used only for business. Internet service should also be limited to business purposes in order to secure that deduction.
Many taxpayers are afraid to take a deduction for home office use. The reason most often cited is that it will flag their return for an audit, but that is not necessarily true. As long as you properly document the business use of a room in your home, you should have nothing to fear by taking the deduction. If you have any question as to whether you qualify, here is the rule directly from the Internal Revenue Service:
Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularlyÂ…
- As your principal place of business;
- As a place to meet or deal with patients, clients or customers in the normal course of your business;
- In the case of a separate structure that is not attached to your home, it must be used in connection with your trade or business.
For certain storage use, rental use or daycare facility use, you are required to make use of the property regularly but not exclusively.
Assuming you do meet these rules, you can deduct a portion of your homeÂ’s operating expenses, including:
The deductible portion of your homeÂ’s operating expenses is based on a percentage determined by the size of the home office, divided by the size of the home.
If your home is your primary office, then traveling to purchase supplies, meet clients and perform other business tasks qualifies as business use of your vehicle. You have a choice between using the standard mileage rate or actual expenses for the operation of your vehicle, which includes depreciation. It is imperative to maintain a log throughout the year to document the mileage claimed.
In addition to providing an income (and maybe helping you keep an eye on your children), working out of your home can provide substantial tax benefits. Just take care to follow the rules and, above all, keep good records. If you are working at home, give us a call and letÂ’s make sure you are taking every deduction you are entitled to.
Have a great March!