There are so many benefits related to any home based business. Apart from enjoying your own freedom, independence and proximity to your family, you also benefit from a range of tax advantages. While you wouldn’t want to start a home based business solely on the basis of tax advantages, the fact is, running a business from a home office setting presents great tax advantages you wouldn’t get in many other places. Here are some of the tax advantages of a home based business and some advice on how to benefit from them.
Home office tax advantages
Based on the percentage of space of your house represented by home office, you can benefit from deductions of a number of household expenditure such as utilities, insurance, property taxes, internet and phone bills.
If you are a home based business owner, you can for instance benefit from deductions on part of your mortgage payment for tax purposes. According to Internal Revenue Service, the deductible amount is based on the square footage of home and office.
You can simply determine how much is deductible by taking the square footage of your office and then divide it by the total square footage of your livable home space. The result you get is the percentage of your home, which is consecutively the percentage deductible on mortgage for tax purposes. This can also determine the percentage you can deduct from the mortgage interest.
This is one of the well-known tax advantages for home based business owners as it covers a wide range of household bills and utilities as well.
Supplies and Equipment Deductions
Being a home based business owner qualifies you to write off supplies and equipment you use for your business. These include equipments such as pens, legal pads, staplers, folders and so on. If you use computers, faxes and printers to run your home based business, then you can also write them off. The only problem is that most office equipments depreciate with time and tax deductions are usually based on particular equipment’s current value.
If you operate internet based business that sells or supplies products, you can as well write off the cost of the products you have sold. If for instance you sell $1500 worth of products and the cost of the goods sold is say $250, then you may claim the deduction of the amount incurred as cost of goods sold.
Tax Advantages on Business Expenses
There are many home based expenses that are tax deductible such as:
- Education – expenses you may incur on education intended to improve your business skills
- Meals and traveling expenses
- Car expenses – you may take deductions on the expenses incurred by using your car for transportation in your business. This is usually done by deducting gasoline or mileage traveled for business based on per mile amount.
- Software used for running the business
If you for instance choose to engage your teenage kids to do certain duties for your business, then you can also deduct that as your additional business expenses and your child’s income.
For considerations, it’s important that you keep your inventories and documentation on hours worked by your family members. This will help you when using IRS schedule C to file your report on income and expenses.