Home Business Tax Breaks
Home businesses can be great tax shelters. Millions of Americans have some sort of office in their homes. If you are one of these lucky people and meet the IRS requirements found in IRS publication 587, you can take deductions for expenses related to the business use of part of your home.
If you want to know if you qualify the IRS requirements to claim expenses, you need to meet the following three tests:
Exclusively and regularly as your principal place of business.
Exclusively and regularly as a place where you meet or deal with customers
In connection with a trade or business.
If you qualify to claim expenses you may deduct a portion of the following:
Real estate taxes
Deductible mortgage interest
Depreciation
Insurance
Rent
Repairs
Security system
Utilities and services
Now why a portion? Well, you dont exactly use the whole house for a business so you need to determine how much of your house is actually used for your business. For example, say you have a regular 9 to 5 day job and decide to start an internet business. You do all your work for this internet business in your home office. As a basic example, lets say you have a house that is 1000 sq feet and your home office is 100 sq feet. Thats 10% of the total area of the house (100 sq feet / 1000 sq feet). Thus, you can deduct 10% of all valid expenses on your tax return. So, if your end of year utilities cost was $1200, you would be able to deduct $120 ($1200 yearly utility cost * 10% business percentage use of your house).
Be sure to keep accurate records of all your expenses. You must keep records that provide the information needed to figure your deductions for the business use of your home. You should keep receipts, bills, cancelled checks, credit card statements, and other evidence of expenses you paid. The IRS requires you to keep these records as long as they are important for any tax law; usually 3 years from the date your taxes are filed.
A home business can generate substantial tax benefits. If you do decide to start a business be sure to discuss your with your accountant.
To learn more about the tax benefits of a home business, visit the Home Office Tax section of the Real Estate Owner website.
About Author
Chris is trying to help educate people about the real estate tax breaks available to them.
Source: ArticleTrader.com
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