What are the rules of write offs for home based businesses
When it comes to figuring out write offs for home based businesses, every business owner wants to make sure that they get as many deductions as possible. Unfortunately in their quest to try to make it so they pay as few taxes as possible, many home based business owners break the fine lines that exist within the rules stipulated by the home office deduction and end up getting themselves into a lot of trouble.
It is important to know the rules and write offs for home based businesses so that when you submit your tax return this spring you do not have to live in fear that the IRS is going to come after you for claiming a deduction that was not legitimate. Here are a few of the rules about home office deduction write offs that you should keep in mind. If you have any further questions it would be best to seek the council of an accountant who can best explain the ins and outs of this deduction to you.
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The definition of the home office deduction takes into account the "depreciation and operating costs for maintaining an office, workshop or other business site in the home."
In order to determine the numerical amount of your deduction you will need to figure out the square footage of that space and divide it by the home's total livable space.
Utility costs can also be included in the deduction but you must deduct only the business's share of your home's overall utility costs. A good way to think about how you will calculate this deduction is to figure out what your utility bill would be if you didn't work at home. Your deduction will be higher in most cases if you do so.
You must make absolutely sure that the space you are claiming under the home office deduction is used solely for your home business. You are asking for trouble if you claim an area that doesn't qualify for the deduction. Even the square footage of a closet in the room that you are claiming as office space in your deduction does not qualify for the deduction if that closet is not used solely for business purposes.
Keep good records of your expenses and especially your start-up expenses. You might be surprised at how much money you spend to outfit your office. Also consider how much of your day-to-day expenditures are deductible as business expenses.
Avoid the common mistake of trying to deduct an entire expense as a business expense when it is not attributable only to the business. For example, you may share your office computer with your family when you are not using it for business. When making deductions, you should only deduct the percentage of time that you're actually using the equipment for your business.
Don't forget to take advantage of the fact that the IRS allows you to deduct the expense of the first mile that you drive away from your house each day when traveling for business purposes. People who are not self-employed are not allowed the luxury of deducting their commuting expenses.
As was mentioned previously, these are just a few examples of the rules of write offs for home based businesses and you should really make sure that you have done your homework when it comes to this deduction and that you clearly understand the complete list of rules that you must follow in order to avoid trouble with the IRS. Home office deductions can be very beneficial to you and it is well worth the effort to save yourself the tax dollars.
