Tax time is often a stressful time of the year for small business owners and those who are self-employed. As a business owner, one way to minimize potential tax season headaches is to make sure that you are taking advantage of all the home business tax deductions you qualify for. Often time, in the rush to complete your tax return in time; it is easy to miss some valuable deductions that could save you a lot of money.
The IRS wants to collect every penny they can claim from your business activity and you want to make sure you only pay taxes on what you need to. When you own and operate a home business, it creates a unique set of tax deduction that are only available to business owners. Each of these deductions will reduce the amount of taxable income you have for the year which in turn lowers the amount of money you will have to pay in taxes.
Money-Saving Home Business Tax Deductions
Here are some of the top home business tax deductions you will want to take advantage of if you qualify:
1. The Home Office Deduction - If you do most of your work at home, you may be eligible to deduct part of your rent or mortgage payment and utility expenses. There are certain specific qualifications a home business owner must meet to legally claim this tax deduction. This area is a well-known item of scrutiny for the IRS and rumors suggest that it is a favorite target for audits which at times, causes business owners to avoid taking the deduction just to stay under the radar of the tax man. It's a major and costly mistake to skip over this deduction if you are fully qualified to take it.
The key to claiming this deduction is that you must use the area you designate as a home office exclusively for business and it must also be your primary place for doing business. If you have a regular job and happen to do some work from home, you are not able to take a home office deduction on your tax return. Even if you can't take the home office deduction, you can still deduct other business expenses that occur in the home! Many people don't understand this and miss out on deductions they are fully entitled to take. I'll offer some examples of those items that do qualify below.
2. Advertising Expenses - If you had expenses related to the marketing and promotion of your business which almost every business does; you can deduct these items on your business tax return. Common examples include flyers, business cards, newspaper ads, radio commercials, television commercials, and online marketing costs such as pay-per-click advertising on Google or Yahoo.
3. Automobile Expenses - Did you use your car or truck for business last year? You may be eligible to deduct some of the costs including mileage, gas, maintenance, and license fees. The rules pertaining to the business use of your vehicle are quite complex and it is a good idea to use a tax preparation software such as TurboTax or H&R Block At Home to help you calculate any business vehicle expenses that you can deduct. Be sure to keep detailed and accurate records to support your deduction claim including maintenance receipts, travel logs, and mileage notes.
4. Equipment Purchases - Most home offices need equipment to run them such as computers, printers, fax machines, furniture, networking equipment, phones, etc. As long as you bought these items for business use only, you can deduct the cost of this equipment at tax time.
5. Office Supplies - Don't forget items such as pens, paper, file folders, printer cartridges, paper shredders, and other items you use during the course of business. Just be sure to save all of your receipts for these items so are able to support your deduction.
6. Accounting Expenses - Even if you don't outsource your bookkeeping and accounting to an outside firm, you can still deduct expenses related to business record keeping. Any money you spend on preparing your income tax return also qualifies for a deduction so if you just purchased the latest and greatest tax software program to do your taxes this year, save your receipt and take a deduction!
7. Wages/Contract Labor - If you had employees that you paid a salary or hourly wage to or used a freelance worker to offer a service such as consultation or web design, you are eligible to deduct these expenses.
8. Cost of Goods Sold - If your business works with the sale of physical goods, you can deduct the costs involved with acquiring those goods such as the cost of the products, shipping, and storage expenses.
9. Start Up Costs - Expenses related to starting a new business are deductible up to the amount of $5,000. Business start-up costs in excess of $5,000 may still be written off however you will need to amortize those costs over 15 years.
10. Bank Fees and Interest - Most businesses have a small business checking account and fees related to the account are deductible. If your business accepts credit cards as a form of payment, you may also deduct the costs of your merchant account and any transaction processing fees you incur for accepting payments.
11. Miscellaneous Stuff - Depending on what your business does, you may be able to claim a tax deduction for items such as cell phones and related service plans, internet access, insurance premiums, interest, charitable contributions, state and local taxes paid, and several others. Travel and entertainment expenses can also qualify as business expenses but this is an area where you should exercise caution. There is a fine line between travel and entertainment that is necessary for business and that which is not. This is another favorite target for IRS auditors so it is extremely important that you keep accurate and detailed records including where you went and what type of business activity took place.
You can find more information and detailed rules as they apply to home business tax deductions by using the small business and self-employed tax center on the IRS website. It is a free resource and will help you to successfully navigate through any home business deductions you are eligible to take. Haven't started working on your taxes yet this year? This article about online federal income tax filing will guide you through the process of filing your tax return online this year and help you select a tax software program to help you.
Be sure to take advantage of any of the home business tax deductions listed above that apply to your personal situation. If your business legitimately qualifies for a deduction, take it! Don't let the fear of a tax audit scare you into paying more than what you owe. Just be sure to always keep organized, accurate, and detailed records and tax season will be a breeze!