HOME OFFICE DEDUCTION
The Home Office deduction is one
of the more complicated and misunderstood tax deductions for the small business
person who works from home, but it can also be one of the most lucrative.
The room must be used exclusively for business. To figure the deduction, you
must determine the total square footage of your home and the total square
footage of the office. Example: Total house is 2000 square feet and the office
area is 200 square feet. This will give you a 10% office usage equation. You
will then be allowed to deduct 10% of your costs for the upkeep and maintenance
of your home which includes insurance, taxes, mortgage interest (or rent if you
do not own), electricity, gas, and repairs for the entire house. Additionally,
you can take specific fix-up and maintenance costs in full if they are solely
for the business space. You can also deduct the cost of office equipment
such computers, office furniture etc, as long as they are used exclusively for
business as well as other office supplies like paper, pens, pencils etc.
There is also an alternative
method for determining the deduction if you don’t want to do the math. This
simplified method allows you to deduct $5.00 per square foot of the space up to
300 square feet. All the other rules apply.
COMMUNICATION
The costs of telephone, cell
phone, internet used for business are deductible. If these are shared or used
for other purposes you must figure the percentage of business use.
AUTOMOBILE EXPENSE
If you use your automobile in your
business for things like visiting customers or vendors or gong to business
meetings and other business related activities you are entitled to deduct the
expenses associated with the business use of your automobile. You may choose to
take a deduction for actual business miles driven plus any parking fees and
tolls. The mileage deduction rate for 2016 is 54 cents per mile. It is
important to keep an accurate record of your business miles in the form of a
mileage log. Instead of mileage you may deduct actual expenses of business use
of your automobiles such as gas, oil, repairs etc. You must still keep an
accurate record of business miles driven as well as total miles driven for the
year in both cases.
HEALTH INSURANCE
You may deduct the amount of
health insurance premiums paid for yourself and your dependents from you gross
income. It is not necessary to qualify for itemizing your deductions on
Schedule A.
TRAVEL
You may deduct the cost of
business travel. Expenses like airfare, hotels, car rentals etc are deductible.
You may also deduct 50 percent of your meal expense while traveling on
business.
ENTERTAINMENT
You can deduct the cost of
entertaining clients. You can take them out for a meal and entertainment but
they must be paying customers or prospects who are expected to be paying
customers.
Operating a home based business
can be both personally satisfying and lucrative. One of the most important
tasks, however, is keeping complete and accurate records. It is important to be
able to take all tax deductions that you may be entitled to and if you have
accurate records you will have no problems if you are selected for audit by the
IRS. Be sure to consult a tax professional to be sure you are on the right
track.
