Copyright © Vicki Szeremeta
A big advantage of starting your own home-based business is the tax benefits of operating a home-based business. Basically, working from your home allows you to deduct portions of bills that you are already paying to live there.
To take deductions for a home office, you must have a room that is used regularly and exclusively for your business. This room cannot be used for anything else. Figure out how big that room is in proportion to the house, and you can deduct expenses using that percentage. Deductions will be different if you own a day care business, meet clients in your home, or have an area set aside for storing inventory. For this article, we are speaking about a business that is operated only out of one room in your house.
In general, you can deduct that portion of expenses that directly relates to your home office. Some expenses that you may be able to deduct are the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs. If you have expenses attributable only to the portion of the home used in your business you can deduct the entire amount. For instance, if you add a second phone line for business purposes you can deduct the entire cost of the second line.
Keep in mind, if your gross income from your business is less than your total business expenses, your home office deductions will be limited. If this is the case, you will be able to take the deductions next year.
The deductions for office equipment are a bit more complicated and are best discussed with your tax advisor.
Do not forget to deduct any expenses for furnishing and decorating your home office.
As you can see, there are many tax benefits in having a home office. Make sure that you keep all receipts and bills associated with your home office and discuss your allowed deductions with your tax advisor. You don’t want to miss anything! Your tax savings is yet another benefit to owning your own home-based business.
Source
http://www.irs.gov/faqs/faq-kw82.html
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