Tax Advice for Your Home Based Business

  Written by Sherri Jones on Jan 05, 2009 12:40 PM

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There are many advantages in owning your own home based business.  It is more than just working from home it is a business that has many advantages, one of them being tax advantages.  As an employee, not only is your income predictable, but so are your tax write-offs.  Typically as an employee your two major write-offs are your home and your dependents.  But when you have your own business, large or small, the tax write-offs/tax advantages are numerous.

There are times in business, especially the first three years, where you may spend out much more than you earn and at that point you maybe eligible for a tax credit.  A tax credit is when the money you paid out will not be refunded to you, but you will be credited that amount for the year(s) to come until your income exceeds that credited amount.  Keeping a good track record of your expenses is very important.  Not only should you keep your receipts for each business you may have separate, but you should record it in a program such as Quick Books.  Many accountants use software such as quick Books and if your accountant uses something like that then it will be simple for you to download your information to them when it is time to file your taxes.  It is also a good tool to have for you to reference when you need to review your budget or see when and where you profit or have a loss via customers or time frame. 

Here is a list of the numerous tax advantages that you maybe eligible for when you own a home based business:

1. Auto Expense.  If you use your vehicle for business purposes there are many items that you can write-off on your taxes.  Keep records of your mileage, gas receipts, tolls and parking fees.  If you lease your vehicle, you must take a percentage of the business year end mileage.  One easy way to keep track of the year end mileage is to get your oil changed at the beginning and at the end of the year for an accurate mileage reading.  If you solely use your vehicle for business be sure to keep your maintenance and repair receipts.  Leverage your time, buy groceries from a store that is on the same route as your business appointments that way you will save a trip and ultimately write it off at the end of the year.
2. Payroll.  If you have children helping in your business pay them.  If it is under $5,150 per year (maybe slightly higher now), you don’t have to file a return for them.  With the money they earn, have your kids pay for their extracurricular and daily incidentals using their wages earned.  It will teach them life lessons and help your bottom line.
3. Office Equipment/Expenses.  If you have an office inside of your home, you can write off any equipment or furniture in it as long as it is used 50% of the time for business.  Office equipment such as computers, printers and other technology can have a tax deduction of up to 75% of your purchase price on your taxes the year they were purchased.  Other office equipment would include: desk, chairs, desk and room accessories, paper supplies, stationary, business cards, samples etc.  When you switch out or update your samples, it would be very economical if your samples are necessities that your household can use.  There is not a size limit on samples, samples don’t have to mean “sample size” or 3 oz. like the airlines require us to use.  A percentage of your utilities, home insurance, repairs and up keep are all tax write-offs.  Cell phones, internet and fax services are tax write-offs too.  A deduction of up to $30.00 per week to pay for your phones may be made and the extras such as voicemail, three-way and text messaging are deductible.
4. Other.  Shipping and handling fees, event costs, health insurance, lodging, conference fees, business meals, convention fees, education, licenses and food that you purchase for an event are tax deductible.

So as you can see, just about every expense pertaining to your business is tax deductible.  Remember when you form your business team your tax accountant plays a very important role.  Before you begin or continue any further you should consult with your tax accountant for additional tax benefits that are specific to what you do.  Meet with them weekly, monthly, bi-monthly or quarterly depending on the size and growth of your business to make sure you stay on the right track.  Watch your financial output because even though you get tax deductibles it doesn’t mean you will get that money back like I mentioned at the beginning of this piece, you may receive a tax credit.   Monetize as you go so that you can earn income as you build.  Get and stay organized, communicate with your team of advisors and ask any questions or concerns that directly affect your business.

Do your research.  There are many more tax advantages that are available they you may be eligible for.  Don’t short change yourself by not being informed.  Be proactive so you don’t have to react to any costly, avoidable mistakes.  Start this New Year off right by ending the last strong…why not begin with your taxes?

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