December 13, 2009

Most Home Based Businesses Qualify for Tax Deductions

Economic recession has forced many people who have been laid of to go in business for themselves. New home based small business owners ar not aware of all the tax deductions that apply to them. It doesn’t really matter where you work from, IRS says that a business that operates in an apartment, house, condominium, mobile home, or boat can qualify for a home based business deduction.

There are certain requirements that a home based business should meet.

- You should dedicate a part of the home exclusively as a place of business.

- The part of the home has to be identifiable.

- You should be using your home for business regularly.

- You should be meeting your clients in that part of the house.

Your house should be the primary place for your business if you have a secondary place.

If you are following the above requirements, you qualify for a home business tax deduction. As with every deduction listed in the Internal Revenue Code, there is a deduction limitation for home based businesses.

You can only take business deductions for the percentage of home used to conduct the business. For e.g. If you use one room in your 2 bedroom apartment, the business use of your home is 50%.

There are few misconceptions about home business deductions that are floating around. The most common one is:

- Non-deductible personal living expenses can be deducted as business expenses.

According to IRS, non deductible living expenses are never deductible. For e.g. If you have a coffee in your room that you primarily as business.

It is always a good idea to save all your receipts and bills for at least 5 years. Probability of your business being audited is high, you should always be able to substantiate your claims. Please consult with your tax preparer for more information.

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