Working from home has become an increasingly more viable option in recent years. Yet many don’t realize that there are valuable tax breaks that come with owning a home business. If you’re thinking of starting your own business and are considering doing it from home, here are four tips to consider:
Make Your Home Office a Key Decision Point When Buying a House
If you aren’t yet a homeowner, include the expenses it will take to launch your business in your budget. Bundle expenses like extra phone lines or increased internet services and the cost of creating a trademark or business name with what you’re looking to spend on a home, and bring this information to your lender when seeking a loan. This will set you up for success when you jump into launching, with no surprise costs that could set you back. It will also help you think about potential tax deductions for the business in advance.
Know How to Make Your Home Office Eligible for Tax Deductions
There are two main qualifications: that you use your home office regularly and that it is a principal place of business. For example, if you’re an interior decorator and only use your “office” to surf the web for furniture deals on the weekend, it doesn’t qualify. However, if you spend most of your time conducting your design business in other people’s homes, but use your office a couple days weekly for administrative duties (writing payroll checks, invoicing clients, balancing the books, etc.), your space is eligible for a write-off. It’s also best to devote an entire room to your office, not just a select space within it.
Consider Using Your Tax Return to Create Your Working Space
The average income tax refund falls around $2,100, a great jumping-off point to getting your office both functional and professional. Many of these tools and upgrades will be tax-deductible next year, be it general office supplies or a new work computer. Just be careful not to go overboard; don’t buy an expensive new office toy merely because you plan to write it off.
Don’t Forget About Indirect Tax-Deductible Expenses
These kinds of deductions are pro-rated depending on the size of your home office. Suppose the square footage of your office equals eight percent of your home’s total square footage: this means you can claim eight percent of expenses like property insurance, utility bills and even your mortgage. Be mindful that these kinds of deductions can be tricky; you can’t deduct that cost of your landline, but you can claim long-distance business calls made on the line. When in doubt, check with your tax adviser to be sure.
Running a home business can pay off in many ways; the key is knowing where to start. Keep in mind that some deductions may vary from state to state, so do your research and consult a professional with any questions. Before you know it, you can be the owner of your very own tax-friendly home business.
Maple C. is currently working her dream job as a motivational coach. She recently launched her blog where she writes about the importance of pursuing your passions, following your dreams – and letting inspiration in.