Home-Based Business Tax Questions Answered
By Amy Peterson
One of the biggest hang ups for many people who want to be their own boss is doing their business taxes. Many find it complicated and choose to have someone else do their taxes, or they attempt to do their own. There are many ways that a home-based business can make money and save money on their taxes, but unfortunately many business owners don't know how. In an effort to provide some help to those business owners, here are some of the most frequently asked home based business tax questions.
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What Can I Claim On My Taxes?
The great thing about having a home based business, is that there are many things that you can claim on your taxes. Of course, make sure that these are actually business expenses, otherwise you may be audited and no small business owner wants to go through that. Here is a list of the most common types of claims for home based businesses:
- Advertising: Any type of advertising you do, from newspaper ads, business cards, flyers, ads on websites and commercials can be written off for the entire amount. These are clear business expenses so there is no problem with writing them off.
- Office Supplies: Anything that you use for your business in your home office can be written off. Paper, printer ink, stationary, postage, any mileage you do for your company and any electronic equipment you have to buy.
- Phone: Making local calls is not something that you can claim, but you can claim long distance calls made for your business. The reason you can claim these is they show up on your bill and therefore can be easy to itemize and list on your tax forms. However, if you have a second phone line meant strictly for business, then you can completely write that off.
- Internet: If you use the internet for your home business, and you most likely will, then you can write that off. This is a bit tricky because you can't show between when you used the internet for business use and personal use, but the cost is so low you probably won't have to worry about being audited.
How Do I Write Off Business Equipments?
In your home business you are going to have some important equipment that you can write off to help save money on your taxes. This equipment can be your computer, any office electronics and any other equipment you have specifically for your company.
Any equipment you purchased in the previous year can be claimed as an expense on your taxes. You can also choose to depreciate the equipment by up to 50 percent under new depreciation tax laws that have been created for home businesses.
If I Run My Business From Home? How Much Rent Can I Write Off?
Since you run your business from home, you have the added luxury of being able to write off part of your rent on your income tax. You still have to pay full rent of course, but you get money back for a portion of your rent because it is used for business. This falls under the Home Office Deduction, which allows you to write off some of your rent. The IRS labels rent as an indirect expense, which means that it is deductable based on a percentage of how much of it is used for business. Therefore, if you only use one room for your business, that room can only be written off. So, if you have a 1,000 square foot apartment, and the room you use for your home office is 250 square feet, then you can write off 25 percent of your rent. If you pay $900 in rent per year, which comes to $10,800 a year in rent, then you can write 25 percent of that off. That means the amount you can claim on your taxes is $2,700.
Amy Peterson is a business consultant and contributing writer for Home-Based-Business-Opportunities.com