Home Based Business Taxes and Finances

Majority of home business owners end up paying more tax than they should to the governement. Presented in this article are some common deductions home-based business owners can claim and reduce their tax burden.

Every year, home business owners start worrying about filing for their taxes or taking what they can gather to their accountants, cringing the entire way. Most are concerned about having to pay huge amounts in income taxes. Some people wait until the very last minute, reluctant to start filling out the necessary forms for fear of making a mistake or of being audited by Uncle Sam. Many look at the IRS as a necessary evil, while others suffer panic attacks at the mere thought of having an IRS agent going over their tax forms with a magnifying glass.

However, audits are rare. Recent polls indicate that a mere 5% of taxpayers get audited every tax year, and even if you do happen to be among the chosen few, good records and receipts will take the pressure off in front of the IRS agent. No one has any control over who gets picked for an audit, but believe it or not, you do have control over the amount you pay the government in income taxes. However, most owners of home-based businesses end up paying more than they need to Uncle Sam because they have neglected to take advantage of deductions, some which are right under their noses, if they only knew where to look. Some common examples:

1.) Your Vehicle. One of the most common write-offs for business owners, whether you work in an office or in your home, is your vehicle. Most people are aware that you can write off use of your vehicle if you're advertising a business, but overlook some other ways in which your vehicle can be used as a business deduction. Something as simple as driving to the Post Office for stamps or mail a package, or making a run to your local office supply store can be written off as a business expense. You are allowed to write off that amount even if you run other errands at the same time. You can also write off portions of your gas expenses, your auto insurance and parking fees that relate to any part of running your home-based business. But make sure you keep good and accurate records of everything. Keeping a notebook in your glove compartment for such a purpose will help keep you organized. Track your mileage for your business-based errands, but don't try to claim that run to the ice cream store.

2.) Write off Your Family! Parents who pay their children an allowance, for example, can also count the amount as a business deduction if you 'hire' them to work for you. Depending on their age, you can put them to work for you; emptying your trash, answering the phone, typing correspondence, filing paperwork, cleaning your office space and so forth. But again, keeping accurate records of where the money goes will save you on headaches at tax time.

3.) Look Around You. When you work in rented office space, you're allowed to deduct the amount you pay in rent on your taxes as a deduction. The same goes for any equipment and the expenses generated by that equipment. But did you know that you could do the same for your Home Business Office Space, whether it's in a separate room of your house or your garage, or a corner of your living room? To figure out how much you can write off, you have to determine the total square footage of your home. Then figure out how much area your home office space takes up. So, if your office space takes up 10% of your total home area and you pay $1000.00 a month for rent or mortgage, you are allowed to claim $100 a month for your office space as a business deduction. That amounts to $1200.00 a year!

You can do the same for your utilities; phone, electric and your equipment, including your computer, fax, copier, right down to the ink, writing supplies and paper clips you use. Just remember, keep accurate records of every dollar you spend on your business, and by the time your taxes are due next year, you'll have nothing to fear.

Even if you do get tapped for an audit, having accurate records and receipts for your expenses and for the deductions you're claiming will greatly increase your chances of not only reducing your tax burden, but also keeping that refund you got!

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