For the majority of people who operate their businesses from their homes, tax deductions can often be the key factor that determines if their business make a profit or a loss in that fiscal year. While tax deductions will often vary from business to business and also from state to state, but there are a few fundamental things are available to any business irrespective.
The first thing that you need to do to is to determine if you qualify for a tax deduction. And to find that out, we need to define what a “home office” is. Simply defined, a home office is any
place within your home used exclusively for business purposes, such as meeting clients, making business calls, etc. While in general, most people’s idea of a “home office” means anything that is
actually and physically inside the home, this is not necessarily the case.
For the sake of calculating your tax deductions, a home office can even be your garage, studio, basement or any such places. The one critically important thing you need to do in order to avail yourself of any tax deductions on your home office, is to ensure you keep a record of all your records, receipts, paperwork and anything that you accumulate in the course of doing business over the period of any financial year.
The one major advantage that this brings for you is to make is much less stressful and time consuming when the time comes to file your taxes. And just so you know, absolutely everything counts. From the receipts you get when you buy a new printer ink toner to stapler pins, to paper, and the smallest thing you buy in the course of running your business. This is because every cent that these purchases, and the tax deductions that accrue from them go a long way in increasing the total sum of money you get back in tax deductions.
There are two categories into which home business tax deductions can be classified or grouped into. The first one is for expenses of a direct nature, or Direct Expenses, which are incurred in, or
needed for the actual running of your home office. This can include things like decorations, furniture and other office equipment, travel costs for business related meetings, internet costs and
On the other hand, there are also Indirect Expenses, which are expenses which are generally tied to the house as a stand-alone entity, but for which the business benefits from. So things like the mortgage payment, internet costs, electricity, etc. From the above, you can clearly see that there is usually some overlap between the two types of cost. The solution to that is usually to deduct the percentage of your business operating costs from the percentage that belongs to your home use.
In addition to the many known benefits of working out of a home office, the
tax deduction benefit certainly has to be yet another major consideration for people wanting to work from home, either in running their business, or even working a regular 9 – 5 job. So if you do
indeed decide to go this route, make sure you get everything right and that you don’t undercut yourself in the process, or short change yourself.
For instance, be sure to include all the expenses that you incur when you entertain a business client. All those cups pf coffee, the milk and sugar all add up over the course of a year. As much as 50% of these expenses can be gotten back in tax breaks. Another often overlooked expense if any education expense that you might incur in the process of up-skilling yourself can be gotten back in tax, especially if such a skill is required by law for such a position or business.
Finally, it is easy to want to do all your tax paper work by yourself, and it can be very tempting to want to do so given how much it can often cost to hire a tax attorney or consultant to help streamline the process for you and make sure you get everything right and help you get as much deductions as you are legally allowed to.