How to Maximize Tax Deductions for a Home Business
Running a home-based business makes you eligible for several income tax deductions. Maximizing your tax deductions helps you to keep more of the money that you make. Be sure to keep good record for your business--you need them in the event of a tax audit.
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Instructions
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Ask for a receipt. Whenever you purchase something to be used by your business, be sure to get and keep a sales receipt. Record the amount that you spend in a ledger or in business software before filing the receipt away. This makes it easier to get your total at the end of the year, without having to pull out and add up all of your receipts.
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Take the allowable deduction for use of your vehicle. If you use your personal vehicle while conducting business, you are allowed to deduct the mileage that you drive for business use. Keep a mileage log in your car and recording the beginning and ending mileage each time you head out.
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Declare business use of home. When you use a portion of your home for business, the amount of the house that is used by the business is deductible. For example, if you have a five-room house, and one room is used by the business, you can deduct one fifth of your home-operating expenses, assuming all rooms are close to the same size. This includes mortgage or rent, utilities, homeowner's insurance and real estate taxes.
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Write off anything that you purchase for your home office, including computers, software and Internet access, as long as they are used exclusively by the business.
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Deduct the cost of meals and entertainment expenses if they are business related. You can not deduct a luncheon with a friend, but you can deduct the luncheon if your friend is also a client of your business and you discuss business over lunch.
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Tips & Warnings
You might want to hire an accountant to do your business taxes. The money you pay the accountant is also a tax deduction.
If you are a sole proprietor, you are also allowed to deduct the cost of your own health insurance. You cannot deduct the cost of health insurance for family members unless they are employees of the business.
To claim business use of a home, the portion of your home that you are deducting must be used exclusively by the business.
