Tax Benefits of Home Based Businesses

Nowadays many small businesses are home based.  There are several benefits of this kind of business organization and some of the most important ones are tax advantages of running your firm from your home.

Using your home as a place of work allows you to deduct a part of the operating and depreciation expenses. If you are starting your own business, consider if your firm can be run from your house. Consult your accountant for a careful evaluation of what can and what cannot be deducted from using your home office.

Among small  companies that could be easily operated from your house are those which are connected with networking, Internet, or any kind of service you provide. A company can remain that way if it is purely an Internet enterprise or a single-person venture, such as sewing or writing that you can handle on your own. Also, if your company is still in first phase of development and you are your only employee (another advantage of home based businesses), this could be a great solution for developing your business and saving your money.

When tax time comes, having your own enterprise run at home can really make sense. Explore all tax advantages that this kind of small business brings.

Home office deduction: You can deduct a part of your home’s operations and depreciation expenses on your home as business expenses. For example, this could be a percentage of your mortgage, property taxes, insurance, utilities or some kind of household maintenance.

It is essential for you to know what are the conditions for this kind of deduction. To qualify, your home office must be the principal place where your business is done and the office space must be used exclusively for business uses.

Maybe you didn’t know that repairs and improvements to your home office are completely deductible. If you are painting your home office, it is directly related to doing business out of your home. Therefore, it is deductible expense.

Among the regular expenses for many of the U.S. citizens is mortgage. Mortgage interest can also be deductible as a percentage of the total mortgage paid for your home. You can write off the percent of total mortgage cost in value of your office space as a company’s cost. For example, if your home office makes up 150 square feet of your house, which makes up 1500 square feet, you can write off up to 10% of the mortgage interest for your house. It is now considered a business cost.

Similarly, if you rent your home, the percentage of your home used for your business would also be deductible.

However, home expenses which are not related to your firm, such as landscaping costs, cannot be reduced.

Also, keep in mind that you can deduct at most in home expenses for your home-based business what its net profit is. So, if you don’t make much net profit, you won’t be able to deduct many home office expenses.

On the other hand, anything you buy as business supplies and use for your company’s needs could be deducted as well – for example, purchasing a computer to use solely for work, company’s cards, pens, paper, Internet connection service, web hosting, domain names etc.

One more advice: if you use these tax benefits, always keep your records, save bills and keep detailed accounts about all of your expenses.