In order to minimize risk and promote an effective money management scheme, home business owners should prepare taxes adeptly with the help of low cost software, government tax guides or home business assistance.
It is critical to your business’ well-being to remain current with the latest tax-related news, and using workshops and phone forums can help you learn the latest as to which tax deductions and credits apply to your home and small business.
Home Business Taxes
According to Business.gov:
"There are two basic tax concepts new business owners need to add to their vocabulary: business expenses and capital expenses.
Business expenses are the cost of conducting a trade or business. These expenses are common costs of doing business, and are usually tax deductible if your business is for profit. For example, costs of renting a storefront, business travel, and paying employees are all deductible business expenses.
Capital expenses are the costs of purchasing specific assets, such as property or equipment, that usually have a life of a year or more and increase the quality and quantity of products and services. For example, if you own a landscaping business and you purchase mowers and excavating equipment, these costs are capital expenses and do not qualify as deductible business expenses. However, you can recover the money you spent on capital expenses through depreciation, amortization, or depletion. These recovery methods allow you to deduct part of your cost each year. In this way, you are ableto recover your capital expenses over time.
Figuring business expenses vs. capital expenses is not always clear cut. Consider taking advantage of free tax training opportunities offered by the IRS. If you have hired an accountant, you should also seek his or her advice regarding tax deductions"
Home Office Tax Deductions
If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. The home office deduction is available for homeowners and renters, and applies to all types of homes, from apartments to mobile homes. There are two basic requirements for your home to qualify as a deduction:
1. Regular and Exclusive Use. You must regularly use part of your home exclusively for conducting business. For example, if use an extra bedroom to run your online business, you can make home office deduction for the extra bedroom.
2. Principal Place of Your Business. You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.
Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
Visit the IRS page on Home Office Deductions for a full explanation of tax deductions for your home office.
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