The Info Village Business Blog

Home Business Tax Reductions

An interesting case in point: If you use your den or a spare bedroom as the principal place of business, working there from 8:00 to 5:00 every day, but permit your children to watch TV in that room during the evening hours, the IRS dictates that you cannot claim a deduction for that room as your office or place of business.

There are, however, a couple of exceptions we will note to the "exclusive use" rule. One is the storage of inventory in your home, where your home is the location of your trade or business, and approval for your business, then, could be as your trade or business is the selling of products at retail or wholesale. According to the IRS, such storage space must be used on a regular basis, and be a separately identifiable space.

Another exception applies to day care services that are provided for children, the elderly, or physically or mentally handicapped. This exception applies only if the owner of the facility complies with the state laws for licensing.

To be eligible for business deductions, your business must be an activity under taken with the intent of making a profit. It's presumed you meet this requirement if your business makes a profit in any two years of a five-year period.

Once you are this far along, you can deduct business expenses such as supplies, subscriptions to professional journals, and an allowance for the business use of your car or truck. You can also claim deductions for home related business expenses such as utilities, and in some cases, even a new paint job for your home.

The IRS is going to treat the part of your home you use for business as though it were a separate piece of property. This means that you'll have to keep good records and take care not to mix business and personal matters. No specific method of record keeping is required, but your records must clearly justify any deductions you claim.

You can begin by calculating what percentage of the house is used for business, either by number of rooms or by area in square footage. Thus, if you use one of five rooms for your business, the business portion is 20 percent. If you run your business out of a room that's 10 by 12 feet, and the total area of your home is 1,200 square feet, the business-space factor is 10 percent.

An extra computation is required if your business is a home day care center. This is one of the exempted activities in which the exclusive use rule doesn't apply. Check with your tax preparer and the IRS for an exact determination.

If you're a renter, you can deduct the part of your rent which is attributable to the business share of your house or apartment. Homeowners can take a deduction based on the depreciation of the business portion of their house.

There is a limit to the amount you can deduct. This is the amount equal to the gross income generated by the business, minus those home expenses you could deduct even if you weren't operating a business from your home. As an example, real estate taxes and mortgage interest are deductible regardless of any business activity in your home, so you must subtract from your business' gross income the percentage that's allocable to the business portion of your home. You thus arrive at the maximum amount for home-related business deductions.

If you are self-employed, you claim your business deductions on Schedule C, Profit (or Loss) for Business or Profession. The IRS emphasizes that claiming business-at-home deductions does not automatically trigger an audit of your tax return. Even so, it is always wise to keep meticulously within the proper guidelines, and of course keep detailed records if you claim business related expenses when you are working out of your home. You should discuss this aspect of your operation with your tax preparer or a person qualified in the field of small business tax requirements.

If your business earnings aren't subject to withholding tax, and your estimated federal taxes are $100 or more, you'll probably be filing a Declaration of Estimated Tax, Form 1040-ES. To complete this form, you will have to estimate your income for the coming year and also make a computation of the income tax and self-employment tax you will owe. The self-employment taxes pay for Social Security coverage.

If you have a salaried job covered by Social Security, the self-employment tax applies only to the amount of your home business income that, when added to your salary, reaches the current ceiling. When you file your Form 1040-ES, which is due April 15, you must make the first of four equal instalment payments on your estimated tax bill.

Another good way to trim your taxes is by setting up a Keogh plan or an Individual Retirement Account. With either of these, you can shelter some of your home business income from taxes by investing it for your retirement.

About the Author

Uchenna Ani-Okoye is an internet marketing advisor.

Sign Up to my mailing list NOW at: Internet Marketing Strategy and Receive my FREE E-Course Worth $67!

	Home-Based Business For Dummies List Price: $19.99 Sale Price: $10.00 Used From: $8.00 Average Rating:
	Expert tips and advice on starting a home-based business Starting your own home-based business is a great way to supplement your income in these tough economic times. With thirty percent new and revised material, Home-Based Business For Dummies, 3rd Edition gives you the most current and up-to-date information you need to navigate your way through the whole process...

Home Business Tax Deductions: Keep What You Earn List Price: $34.99 Sale Price: $21.81 Used From: $27.99 Average Rating:

Keep your hard-earned money in your home business! Completely updated for 2009 returns Tax deductions are essential to any business, but even more so when your office is also your home. Don't spend thousands on an accountant --turn to Home Business Tax Deductions and do it yourself! Home Business Tax Deductions will help you write off: your home office start-up and operating expenses vehicles and travel entertainment and meals health insurance and medical bills inventory equipment The 6th edition is completely updated with all the latest tax information, eligibility requirements and deductions for 2009 returns...

	How to Start a Home-Based Professional Organizing Business (Home-Based Business Series) List Price: $18.95 Sale Price: $11.59 Used From: $11.18 Average Rating:
	Establish a business and begin taking clients immediately with this complete guide to starting a home-based professional organizing business.

	How to Start a Home-Based Jewelry Making Business: *Turn your passion into profit *Develop a smart business plan *Set market-appropriate prices *Profit ... on the Internet (Home-Based Business Series) List Price: $18.95 Sale Price: $11.73 Used From: $11.20 Average Rating:
	Maire Loughran draws on her years of experience to show you how to turn your passion for beautiful jewelry into a profitable sideline or full-time business.

The 200 Best Home Businesses: Easy To Start, Fun To Run, Highly Profitable List Price: $12.95 Sale Price: $2.99 Used From: $2.92 Average Rating:

Tired of your humdrum workday routine? Looking for a new an exciting career path that allows you to be your own boss and make your own rules? The 200 Best Home Businesses is the book for you. This completed revised and update 2nd edition profiles 200 of the best and most profitable businesses that you can run from your home Inside, you'll find jobs for your every interest, from Computer Programmer to Personal Chef...

	Best Home Businesses for People 50+ List Price: $19.95 Sale Price: $7.59 Used From: $2.95 Average Rating:
	For the fastest-growing segment of our population, here is a comprehensive guide to starting and running a home-based business in midlife and retirement. A baby boomer turns fifty every seven seconds, creating what will soon be the largest and most influential senior generation in history...

	Start & Run a Home-Based Food Business List Price: $21.95 Sale Price: $15.80 Used From: $34.77 Average Rating:
	Are you one of the many people who dream of making a profit selling your own homemade foods? Now, with this one-of-a-kind, easy-to-follow guide, you can realize your home-based food business dreams! With over 25 years' experience, author Mimi Shotland Fix takes you step-by-step through the process of starting and running a food business...

	How to Open & Operate a Financially Successful Redesign, Redecorating, and Home Staging Business: With Companion CD-ROM List Price: $39.95 Sale Price: $19.97 Used From: $19.97 Average Rating:
	Are you planning to become part of this redesign or real estate staging network? During this time of phenomenal growth, these businesses may be worth your investigation. If you can answer yes to any of the following questions, then the redesign or home staging business may be just right for you...

	How to Start a Home-Based Gift Basket Business, 4th (Home-Based Business Series) List Price: $18.95 Sale Price: $7.50 Used From: $7.00 Average Rating:
	Crucial advice on how to design, promote, and sell gift baskets from a home-based operation. Tips on managing finances, beating the competition, organizing work spaces, and avoiding common pitfalls, along with helpful worksheets, will help turn an amateur into a successful entrepreneur...

	How to Start a Home-Based Online Retail Business (Home-Based Business Series) List Price: $18.95 Sale Price: $9.00 Used From: $7.96 Average Rating:
	All the information you need to get online and selling, from creating a winning website to writing a business plan, software choices, security issues, taking credit cards, taxes and record keeping, marketing your business, legal matters, and how to grow your business...