Tax Benefits Of Starting A Home Based Business

Tax Benefits Of Starting A Home Based Business

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.

“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   
Tax Benefits Of Starting A Home Based Business

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 a good tools to track your expenses.

You can use Neat Receipts or Taxbot app to track 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 purchase during the meeting.

5) Have an accountant that understand 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.

IRS ALWAYS goes after bad documentation. Thats why we recommend to use tools that are handy like Neat Receipts or Taxbot to track and document all your expenses. 

3) Not Tracking anything

If you don't track your expensie it will NOT get approved.

Don't just focus on earning the money but pay attention to the legal tax loopholes that you can maximze. 

Common Loopholes

  1. Pension and 401K plans for entrepreneurs
  2. Income shifting (for example: hiring your kids)
  3. Dry Cleaning
  4. Medical expenses
  5. 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.

Recommended Tools

NeatReceipts

Taxbot

Did This Help You? If so, we would greatly appreciate it if you commented below and shared on facebook

PS: Are you looking make additional income for the month? YES! Click here to schedule an appointment to learn more or read our post, How to make money online - 8 Ways to creat a Side Hustle 

Leave us your feedback or a comment as we appreciate our audience, Thank you again for reading this post. Please be sure to follow us on Twitter | Facebook | Instagram

Tax Benefits Of Starting A Home Based Business

Facebook Comments

comments

Follow Melissa & Rodney Diamond:

Entrepreneurs

Hello there! We are glad to see you’ve stumbled upon our little slice of the web. We hope you take a look around. Through this platform, we want to share experiences of entrepreneurship in hopes that it will motivate and encourage others to dream big, reach for the stars and follow your genius. We don’t consider ourselves gurus, our information is not secrets and the kinds of things we teach are not “get rich quick” schemes – far from it actually. Honestly, most of the information we could give you can be found for free here on our blog or elsewhere online.

Leave a Reply