Know Your Home Business Tax Deductions

Know Your Home Business Tax Deductions

Do you work from your home?  If you do not have or plan to have business income for 2015, you may need other evidence to establish legitimate business intent. Consult your attorney or tax specialist for advice on your allowable home business tax deductions.  If you cannot take advantage of business deductions this year, begin gathering information on record keeping and tax planing tips for 2016 taxes.

You should know that the IRS and state tax codes allow for business-related deductions and allowances which include home-based businesses. Two applicable forms to use are Federal Form 1040 Schedule C (Profit and Loss From Business) with Instructions, and Form 8829 (Expenses for Business Use of Your Home) with Publication 587 instructions. Schedule C could include allowable business related expenses, such as advertising, legal and professional services, office expenses, equipment, supplies, auto mileage, travel, meals and entertainment, etc. Publication 587 defines “home” to include house, apartment, condominium, mobile home and boat. Below are some of the most common deductions small businesses take. You should speak with your tax specialist to learn about other deductions your business can take advantage of:

  • Health insurance
  • Home office deduction
  • Retirement Plans
  • First year expense deduction
  • Rent, phones, utilities
  • Auto expenses
  • Education
  • Entertainment
  • Gifts
  • Public relations, promotion and advertising
  • Trade shows, conventions and seminars
  • Professional publications
  • Interest payments on business credit cards
  • Internet and e-mail services
  • Professional associations
  • Local travel
  • Business travel
  • Parking
  • Postage
  • Office furniture
  • Office supplies
  • Business cards and stationary
  • Insurance
  • Local business taxes and fees
  • Bank service charges

One easy to remember illustration of the benefits of using Form 8829:

A part-time home-based business owner paying $1,000 per month rent, uses a home office which is 20 percent of the total living space and is in a combined federal and state marginal tax bracket of 30 percent (20 percent + 10 percent). The home office space deduction could result in: ($12,000/yr) x (20 percent) x (30 percent) = $720/yr reduction in income taxes, not including deductions of 20 percent for utilities and other household expenses. In this scenario, your initial investment in your network marketing business would be recovered several times over each year, and allow preserving more of your salaried income. There are various other deductions and tax savings opportunities.

I have filed a Schedule C every year with my tax returns detailing my home business tax deduction.

I was audited during 2009 by the IRS on my 2007 tax returns and none of my home business tax deductions were disallowed. I actually received an additional refund! I believe that I benefited by having a an experienced tax attorney with me during the audit 🙂

To learn more on home business tax deductions, consider attending a Sole Proprietorship Workshop conducted by the IRS. I attended one a few years ago at the Entrepreneur Center in downtown San Jose. Of the approximate 25 attendees, nearly all were home-based business owners. This free workshop is offered in Santa Clara County and provides valuable information, handouts, and free software. Ask about workshop locations in your area on the IRS Website.

Make sure your prospects are aware of home business tax deductions.

When you are sharing your network marketing business opportunity with others, be sure to also mention the beneficial home business tax deductions to your prospects, particularly those with salaried jobs and no other means of “sheltering” their income. Simply ask them if they would like to learn more about how joining your  business could lessen their tax bite for next year.   After all, who would not like to keep more of what they earn?

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About Online Biz Boomer Babe

Rachel Lavern is a Certified Business Coach and founder of My Booming Online Business--a blog for middle-age, global, uptown women. She is on a mission to transform entrepreneurs' finances by teaching the action set, mindset and skill set needed to get launched + make money.