Home Business Tax Benefits

Tax Advantages of a Home-Based Business

The benefits of running your own successful business from home are vast. From the independence of working for yourself to making better income, there are many reasons for starting a home-based business

You can claim almost everything you spend on your home business. The expenses that you incur on your home based business are tax deductible but, tax laws may vary depending on where you live.

More on Home Business Tax Deductions

The business portion of your home. What business portion means is how much area of your house you use it for doing home based business.

The principal place of business for your trade or business;
The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business, or the home office must be your principal place of business (unless it is not attached to your house).

Deductions also may be taken for regular use of a residence for the provision of day care services or for business storage purposes; exclusive use is not required in these cases. You also may take deductions if you rent out your residence. For more information, see Publication 587

When figuring the amount you can deduct for the business use of your home, you can use the entire amount of expenses attributable solely to the portion of the home used in your business.

The amount you can deduct for expenses attributable to the whole house depends on the percentage of your home used for business. To figure this percentage, you may divide the number of square feet used for business by the total square feet in your home. You figure the business portion of your expenses by applying this percentage to the total of each expense.

If you are a qualified day-care provider who does not use any area exclusively for day care, your business portion is further limited by the ratio of the number of hours the area is used exclusively for business to the total number of hours the portion was available for any use.

If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home, other than mortgage interest, taxes, casualty losses, and the like is limited. However, those business expenses that can not be deducted because of the gross income limitation can be carried forward to the next year but will be subject to the deduction limit for that year.

Many small businesses let themselves get cheated every year by not taking deductions they are legally entitled to on their taxes for fear of being audited. As long as you stay within the IRS guidelines for what is and is not tax