With Tax season in full swing, there are plenty of ways you can trim your tax bill, the goal of this post is to share how opening a home-based business can have significant value in lowering your deductions. Not only can you take advantage of the home office tax deduction but also you can be able to deduct part of your mortgage payment for tax purposes. Please remember and keep in mind that these deductions are only available to home base business if it is considered to be a real business. According to the IRS, you cannot deduct business expenses unless you engage in a business that is “for profit” basis and not just for a “hobby. Tax Benefits Of Starting A Home Based Business. Note, this post may contain affiliate links. Please read our disclosure for more info.
Tax Benefits Of Starting A Home Based Business
According to Forbes.com
A legitimate home office can let you turn many nondeductible personal expenses into tax savers and may ultimately reduce the amount of your taxable business income.
So what’s deductible?
There are two types of deductible expenses: direct and indirect
Direct expenses, let’s you write off 100 percent of the cost if it is especially associated with the business such as office supplies, cell phone, purchasing a computer to name a few. For example having a cleaning lady would be considered a direct expense as we use our home to meet clients, partners, and customers. Our home is important to our success so it needs to be nice and clean.
The other kind of deductible expenses are indirect they are pro-rated and based on size and can include things such as utility bills, property insurance your mortgage and even your home security.
Please consult with your CPA, accountant or tax preparer on what expenses are deductible for your home for more information on home office deduction visit IRS.com
While many suspects that claiming a home base business will trigger a tax audit. It is essentially like everything you do to keep adequate records. Tips from the IRS include; having a separate bank account as well as retaining all records and receipts. For our family, in order to keep things all together, we use a 12-tab according to a folder in the house and a mini one for the car. Each tab is labeled with a month and we dump all our receipts into the folder and combined and scan all receipts at the end of the month. NeatReceipts is a great option for scanning or Taxbot is an easy way to automatically track your mileage and digitally store receipts.
How can I Qualify for Tax Savings
Here is a checklist of few things you should do:
1) Treat your home-based business as a business and NOT a hobby
Always document and track everything
2) You should be working consistent regular hours
This will force you to work every day on your business and have "regular business hours."
3) Use good tools to track your expenses.
4) Document everything
You should document every expense, even a business meeting at Panera Bread.
Make sure to write down the name of the person and what was purchased during the meeting.
5) Have an accountant that understands your business
The person you hire doing your taxes should understand home businesses
You should Avoid Mistakes With Tax Savings
1) Not Planning for Taxes
Your business Income may look good but the #1 RULE don't forget to pay your taxes
2) Your Lack of Documentation
This will get you in trouble with the IRS. Always show documentation and don't do it last minute.
3) Not Tracking anything
If you don't track your expensive it will NOT get approved.
Don't just focus on earning the money but pay attention to the legal tax loopholes that you can maximize.
- Pension and 401K plans for entrepreneurs
- Income shifting (for example: hiring your kids)
- Dry Cleaning
- Medical expenses
- Car expenses
and much more...
Starting a business from your home can allow you freedom and flexibility, which in the end can also save you money on many fronts.
The Biggest Pimp Game In America, TAXES.
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