The tax laws that pertain to a home
based business change, so the best way to get specifics is through a tax
advisor or a good tax software program that is updated every year.
The average person is paying over
$14,000 a year in taxes. If you have a home based business, you could
easily write the majority of that off each year. Whether you rent or
own your home, the same tax savings apply.
In the simplest of terms, when you have
a home based business, you can use personal expenses and turn them into
business expense. The business expense can be written off and you lower
your income resulting in significant tax savings.
First, you need to establish how much
of your home qualifies. You then calculate what percentage of your home
is used for business. For example, if your home is 3,000 ft²,
and you use 1,000 ft²
for business, you can write off 1/3 of your real estate taxes,
depreciation, improvements like paint or furniture, mortgage interest,
insurance, utilities and telephone.
Fun and Food
You can deduct all your entertainment of clients, and 50-100% of
food that is eaten when you are doing business. If you go on vacation,
you can write off the trip if you spend even a few minutes a day talking
to someone about your business. If you have a meeting in the morning and
take your clients golfing in the afternoon, you can write the entire
golf game off. If you have a Christmas party for clients, it is a write
off. If you go to Disneyland and rent a car and hotel room, you can
write both off if you do business in any way on the trip. As long as the
primary purpose is to promote or build your business, then you can write
it off. The government is quite liberal in this area, so you can
be quite creative and be within the bounds of the law.
Transportation
You will use your vehicle in your business. If you are on cellular
phone making calls related to business, it is a write off. If you drive
to a meeting with clients, make a deposit at the bank, deliver
tickets, get supplies for your office or pick up the mail, it can all be
written off. It is important to keep track of business miles,
maintenance, gas, insurance, registration, tires, etc. If you use your
car for both personal and business you can deduct the percentage of
miles you for business only. Other expenses like interest payments,
parking fees, tolls, leasing a vehicle, etc., can also be deducted.
Most trips you make can be a business
trip if you choose to do so. Then airline tickets, tips, parking,
ferries, tolls, bus, train, subway, taxi, and car rentals can all be
written off.
Gifts and Promotion
Most gifts $25 and under are all a write off, so anything you
purchase to thank, reward or motivate people is a write off. Items like
a pen with your business name, a calendar, fruit basket, etc., are all
deductible.
Depreciation
Most of the time you will need a tax attorney or the latest tax
software to be sure of the rules which change often. Consult with
your tax professional before any major purchase like a car, new
equipment, etc. Depreciation is understood as something that has a value
that will last more than one year such as a car, office furniture, or
computer.
Medical and Retirement Plans
With a home based business, you can write off all your medical
expenses for your family. This includes medical insurance costs,
co-payments, dentist, chiropractor, eye exams, medicine, etc. If your
doctor prescribes massage, it is a write off.
Employ Your Family
Your spouse and children may be hired to work and all the wages paid
are deductible as long as you pay reasonable wages for the work
preformed.
Loans
Any time you need to borrow money, it is always an advantage to get
a business loan rather than a personal loan because you can write off
the interest as a deduction.
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