5 Tax Tips for Home-Based Businesses

5 Tax Tips for Home-Based Businesses

With the recent explosion in home-based business opportunities that have come about with the rise of e-commerce, it is little wonder that more Americans than ever before are operating home- based businesses. Running a home-based business offers a number of advantages, including flexible scheduling and reduced overhead. In this post we will take a look at some of the tax deductions currently available to you as a home-based business owner that can really help you lower your tax bill. While this advice is meant to be helpful in a general way, it does not replace the individualized benefits of consulting a tax accountant or CPA.

1.) Maximize Your Home Office Deductions

If you do your work with a lap top on your kitchen table, moving your ‘office’ to your bedroom when the kids come home from school, your work space will not legitimately qualify as a home office. However, if you do have a space that is use exclusively for work, even if it is only a portion of a single room, you can deduct a percentage of your housing expenses.

2.) Deduct Business-Essential Home Utilities

Before you start deducting all of your utilities, it is important to understand that the only home utilities that you are allowed to deduct are those that are related directly to your business. Obviously, your power and home heating bills qualify, but if you do business online, a portion of your Internet and cell phone services may qualify as well.

3.) Deduct Your Travel Expenses

With home-based businesses we generally do not consider travel expenses as vitally important, but home based business owners still have to meet with clients, attend meetings and even stay out of town for industry conventions. All of these expenses are tax deductible. This would include your air fair, lodging and meals while you are away as well.

4.) Personal and Family Health Insurance Costs

If you are currently being covered on your spouse’s health insurance plan you will not qualify for a health insurance deduction. However, if you pay for your own and your family’s health insurance coverage you may be able to deduct your expenses. This is one way small business owners can make health insurance more affordable.

5.) Office Supplies

Obviously, if you can deduct the home utilities that you need to operate a business out of your home, it stands to reason that you can also deduct all of the office supplies that you need as well. Of course, at one time office supplies referred to things like paperclips, copier paper, printer ink, toner and postage. But today, the office supplies category has swelled to include such things as an iPad or a new lap top. The important thing to remember is you must be able to prove that you are using the item for your business.

Final Thoughts

It is important to remember that any type of business related tax deductions must be handled with care. Of course, we all remember the ease with which we filed our taxes when we were simply an employee receiving a W2 from our employer. When you operate a home-based business, the days of filing an EZ form  are gone. Despite the apparent complexity of filing for all of the various kinds of tax deductions available to home-based business owners, the fact is that it can really help reduce your tax bill. Of course, each home-based business is entirely unique and no generalized approach to maximizing your tax deductions will hold for all home-based businesses. Therefore, it is always a good idea to sit down with a trusted accountant or bookkeeper who can help you sort out how these deductions may apply to your business.