Did you know that small businesses can be run out of your home? Running a business out of your home decreases the overhead costs. A home business can also be a great tax deduction if you know the current tax laws regarding claiming for a home business.
Home businesses need a dedicated location in the house. It could be a desk in the den or dining room. Some people set up in their garage for more space. To keep the business separate from the rest of the household, you’ll ideally want to find a place that can be utilized for business purposes only.
In the past, it was a bit easier to claim a home office deduction. As long as the business was conducted in the home, business owners could claim a portion of their utility bills, mortgage payments, and other expenses. Now, the rules are more defined and a business owner who works from home has more work to do to comply.
The last thing you want is an audit from the IRS. For anything and everything purchased for the business, file receipts and records of all business transactions. In case your number does come up, you’ll be ready to prove what you have claimed.
The most important rule is to know who can and cannot claim a home business on their taxes. For the home business office, the area of the office has to be the primary location of the business. This comes into play when people use offsite facilities for storage or conduction of some business activities. The majority of the work has to be conducted in the home office.
That is not all. A home business office is required to be used exclusively for business. Setting up a computer on the table in your living room is not going to cut it as a home business office if you move the computer every night so the family can eat dinner. For this reason, the garage is a great place to set up because it is not considered living space.
If the business meets these requirements, the home business owner is also entitled to deduct a portion of the household bills that are equal to the amount of space and time used by the business. Add up the entire bill for each utility for the year and then deduct the qualifying percentage.
Home businesses can claim other expenses. Buying office supplies, inventory, and other necessities for the business can be itemized on the IRS business forms. The entire business can be claimed as a loss if the expenses outweigh the income coming in. The goal of business is to make money so hopefully the loss won’t last too many years.
Once the business makes a profit it will be subject to paying quarterly taxes. If you pay these taxes and the business claims a loss at the end of the year, those funds can be recouped. Check with the IRS website for more information.
This article was written by Richard Tyler – a happily retired investment guru who ran several successful businesses during his earlier years. He now shares his wealth of knowledge on investment, business and strategic wealth management at Invest Money Stocks. Ignorance is often the reason why some people are unable to harness upon what they already have to make more money while some ‘in-the-know’ get richer every year simply through investments. Richard sees it as a passion as well as a pleasure to share his knowledge and experience and hopes that his website will be a wealth of knowledge for those who need help in investment and wealth management matters. Invest Money Stocks covers a wide range of topics from business management, home budgeting, personal wealth management to stocks investment, options trading, penny stocks trading, forex trading, bonds, technical analysis, fundamental analysis and more.