Tax Deductions For Home Based Businesses

Did you know that part of your home security system may be deductible, if you have a home-based business?

Did you know that part of your home security system may be deductible, if you have a home based business? Starting a home based business can be fairly expensive in the beginning stages. Thankfully, the government has given us some ways of accounting for that loss you incur as a result of your home based business.

First let me explain how to figure your business percentage. The business percentage will be used to determine the deductible amount of your indirect expenses. The business percentage is the amount of square feet your business uses divided by the square feet of the whole house. For more information on whether your home based business qualifies as a home based business, see IRS publication 587.

Indirect expenses are expenses that are incurred to maintain the whole house. Direct expenses are expenses that are incurred to only the portion of the house used for the home based business. The business percentage will determine the amount of indirect expense you will be able to deduct. Direct expenses, on the other hand, will be totally deductible. Below are examples of both direct and indirect expenses.

Do not get these deductions mixed up with business expenses. They are expenses that you can deduct for any business and should be kept separately. Here we are discussing expenses that can be deducted based solely on the fact that the business is home based.

Direct

Repairs. You can deduct the whole amount of repairs to the portion of your home that is dedicated to your home based business. This includes any labor, except your own, and materials. Painting your office, for example, may be deducted in full if your office is dedicated to your home based business.

Indirect Expenses

Rent. You can deduct a portion of your rent equal to the business percentage. The number we came up with using the amount of space your home based business takes up.



Utilities. Your utilities including electric, gas, water, and trash can be deducted using the business percentage. This does not include your first telephone line which is a non-deductible personal expense. A second phone line may be deducted, but under the regular business expenses rather than the home based business expenses.

Home security system. A home security system that protects every door and window into the whole house can be deducted using the business percentage.

Insurance. You can deduct the amount of insurance that covers the home based business part of your home.

Home. If you own your home, you can deduct the business percentage of your home mortgage interest. You can also depreciate the business percentage of your home. Meaning you will be given a deduction based on the decreased value of your home over time.

If you qualify for the home based business deduction, you are limited to the amount the business earned. However, leftovers may be carried over to the next year's taxes where they will be subject to the same limitations.

To find out more about home based business expenses that are deductible, or any tax questions, go to www.irs.gov. There is a lot of valuable information in their "Frequently Asked Questions" section. You can also find publication 587 there as well.

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