Be Careful With Your Home Business Deductions

 Many new entrepreneurs start a work from home business mainly to take advantage of home business deductions. They assume that every expense relative to their home business is a legitimate tax write off. The reality is that while running a business from home can save you a lot of money in taxes—provided that you take full advantage of legal home business deduction—there is also some risk involved. Some entrepreneurs are almost fraudulent when claiming home business deductions on their income tax returns.

The reality is that home business deductions stemming from a work at home enterprise are quite valuable to a legitimate entrepreneur intent on following the tax laws. Essentially, any expense incurred in the operation of the business is a legitimate tax write off. However, the IRS has established very specific and very detailed rules concerning home business deductions and how they may be applied to revenue.

I should first point out that I am not a CPA—nor would I ever want to be one, but that’s a different story. I do however employ several, mainly for accounting and tax advice. I strongly recommend that you do the same. The tax laws are confusing—an understatement to say the least—and just about everyone should have professional help when dealing with them.

For example, even though you work from home, you cannot write off the entire cost of your rent or mortgage. Instead, the Internal Revenue Service requires that you only deduct the portion of your residence that is used for business activities. Likewise, your automobile can be used as a home business deduction but only to the extent that it is used in the conduct of your business.

You can essentially take the percentage of the miles driven for business, which then becomes the percentage of the total car bill that can be deducted. Again, it gets complicated so you should talk to an accountant about it. Also, if you run a home based internet marketing business you really need to be careful. Since most of your business is conducted from home, a lot of the mileage you drive won’t really be deductable.

The key to successfully profiting from home business deductions is to first get the advice of a skilled accountant or tax lawyer. By properly and carefully interpreting and employing the laws and rules of the Internal Revenue Service, a work from home entrepreneur can gain significant tax advantages. However, by misinterpreting these rules and regulations, and by over extending the reliance on home business deductions, the individual entrepreneur can create significant risk and problems for his or her home business.

The advice here is clear—seek out professional advice prior to declaring any home business deductions. It is far better to err on the side of caution than to make assumptions about valid home business deductions and then running afoul of IRS rules and regulations. Nevertheless, for anyone contemplating a work from home enterprise, home business deductions are a powerful and very important part of the decision to launch the business.

From my perspective, I look at these deductions as a nice incentive, but they’re not the main reason I choose to work from home. I think the time freedom and ability to control my own schedule is far more important. On top of that, I’m a new father, and I love the ability to spend time with my family whenever I feel like it, whether I’m working or not.

Tax deductions are cool. Nobody wants to pay taxes—it’s a pretty basic sentiment. But there are so many more reasons to work from home. And once you do it (successfully, anyway) you’ll never be able to work in an office again.