Home Based Business Tax Tips

It may be a little scary filing your taxes when you own a home based business. Relax though, actually only .05% of people get audited. That doesn't mean you should try to outsmart the IRS. Instead, make sure you are taking advantage of all of the deductions you qualify for.

Most people who own a home based business or work from home have a home office. You can take advantage of numerous tax deductions due to having that designated space. Your home office must be use strictly for business. It must also be the place that you primarily do business from. In other words you cannot have an office outside of your home that is used for your home based business and still take tax deductions for your home office.

When you are figuring the amount of money you are allowed to claim as a deduction, you can only use that portion of your home. For example; if your home office is 10% of the total square footage of your house then you can only claim 10% of your household bills. This means if your mortgage is $700 a month and your work space is 10% of your home you would claim $70 per month or $840 for the whole year.

You can claim numerous things using the formula above. Your mortgage or rent if you're not a homeowner can be claimed. You can also claim portions of your property taxes, home insurance, utility bills, and your monthly Internet service. Your phone bill can also be claimed, however if you have a phone line dedicated just for your business you would claim the entire amount not just a portion.

You also can write off numerous other business expenses. You should be saving receipts when buying office supplies like pens and paper. You can also write off purchases for any equipment you purchased for your home based business. Computers, scanners, printers, and fax machines. You will need to use form 1040 schedule C to calculate these deductions. The cost of advertising is another business expense that can be used as a deduction, as well as the costs to host your website and domain name registration.

Most home business owners know that their car can be a huge tax deduction if they use their car for advertising. However, you can also deduct gas and mileage for any trips you need to make related to your home based business. You should keep a notebook in your car to track your mileage and keep your receipts in. that way you are organized and prepared when tax season comes.

Keep in mind that you need to be savings your receipts for anything business related. That way you have the proof available when completing your taxes. The IRS website is a very helpful tool to answer any tax questions and keep up to date on the new things each year. The tax season doesn't have to be stressful for home business owners as long as you do your research!