Home Business Tax Deductions
Home Tax Benefits
- Deductions can be retroactive. The tax deductions and write-offs now available to taxpayers who run a small or home-based business, also apply to the
past 3 tax years.
Home Business Tax Benefits
"It's not how much you make ,it's how much you keep." Take advantage of the Home Business Tax Savings, savings and Tax deductions for Your Home Business.
Whether you are self employed or are an employee, you may be able to deduct certain expenses and/or cost for a part of your home, which is used for your home business.
Home Business Tax Savings
- To deduct business–use–of–the–home expenses, a part of your home must be used regularly and exclusively:
- As the principal place of business for trade or business
- As the place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business
- In connection with your trade or business, if you use a separate structure that is not attached to your home.
If you use both your home and other locations regularly in the same trade or business, you must determine which location is your principal place of business.
Your home office will also qualify as your principal place of business for deducting expenses and costs for its use if you meet the following requirements:
You use it exclusively and regularly for administrative or management activities of your trade or business, and you have no other fixed location where you conduct substantial administrative or management activities of your trade or business.
In general, because of the exclusive–use rule
, you cannot deduct business expenses for any part of your home that you use for both personal and business purposes. For example, if you are an attorney and use the den of your home to write legal briefs and also for personal purposes, you may not deduct any business–use–of–your–home expenses. The only exceptions to the exclusive–business–use rule
are for qualified day–care providers, and for persons storing inventory or product samples used in their business.
Home Business Tax Savings
If you are an employee
, additional rules apply. Even if you meet the exclusive and regular use tests, you cannot take any deductions for the business use of your home unless: this use of your home is for the convenience of your employer, and
you do not rent all or part of your home to your employer and use the rented part to perform services as an employee.
Deductible business–use–of–the–home expenses include the business portion of real estate taxes, deductible mortgage interest, rent, casualty losses, utilities, insurance, depreciation, painting and repairs. You may not deduct expenses for lawn care or for painting a room not used for business.
The amount you can deduct depends on the percentage of your home used for business. To figure this percentage, divide the number of square feet used for business by the total square feet in your home. Or, if the rooms are approximately the same size, divide the number of rooms used for business by the total number of rooms in your home. You figure the business portion of your expenses by applying this percentage to the total of each expense. Qualified day–care providers must reduce their percentage to account for personal use of any area not used exclusively for business.
If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. However, those business expenses that are not deducted because of the limit can be carried forward as part of next year's business–use–of–the–home expenses.
So You Passed the Test, for your Home Business Tax Savings
. Now What?
Obtain from the IRS and the Instruction Form 8829
. Form 8829 is filed with your individual income tax return. Form 8829 is a pain, it is long and it does require some effort but if you plan on taking the home office deduction, you really should file it. You risk attracting the IRS's reptilian attention if you try and take the home office deduction without filling it out.
You can even qualify for these Home Business Tax Savings retroactively! The tax deductions and write-offs now available to taxpayers who run a small or home-based business, also apply to the
past 3 tax years.
If you had a home-business in any of the past three years, following these simple step-by-step instructions, you can easily file an Amended Tax Return (Form 1040X), and possibly get a Refund Check for THOUSANDS of DOLLARS – plus interest! See all details by reading
Taxes on Home-Based Businesses
Small businesses must make income tax payments on a set schedule just like any other business. The two taxes you should be most concerned about are the quarterly estimated income tax payments and the self employment taxes.
The federal income tax is a pay–as–you–go tax. This means the tax must be paid on income as it is received. Tax is generally withheld from your wages or salary before you receive it, and may also be withheld from other types of income such as pensions and unemployment compensation if requested. However, tax is generally not withheld from income such as alimony, interest, dividends, rental income, self–employment income, and capital gains. You may be required to pay estimated tax on these types of income. Estimated tax is the method of paying tax on income not subject to withholding and on other income from which not enough tax is withheld. You do not have to make estimated tax payments if your 2003 tax return will show a refund.
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