Starting up a home business in this economy is not an easy thing, with the tax requirement that go along with it. But one way to make the most out of your home business is by claiming some tax breaks for which you are eligible. The best way to go about doing that is by write-offs which attract the auditors from the IRS. So let’s have a look at some of the best home business tax tips you can benefit from today:
Keep a Business Journal
If your business is being audited you should not be worried, but you better keep track of all your business records in order to avoid an embarrassing situation should IRS auditors come around. The best way to go about keeping your records is by using a business journal, which can be used to keep track of all your business transactions and activities. Keep the journal updated and record all expenses of the business in the journal to keep a detailed account of your business records.
Write Off Your Workspace
The best way to benefit from tax cuts is by writing off your workspace, in which you can add all the costs of your workspace. This may include mortgage payments, rent, insurance and cost of utilities as well. It is not a wise idea to write off other areas which are not part of your workspace since it usually impacts negatively on you and your business.
Update Your Equipment
You can save on your tax by updating the equipment in your office, which all fall under the 100% deductible ratio if they have been purchased that year. There is however a limit and the equipment should fall under the category of regular usage, so acquiring a widescreen TV for the office is not a wise idea when the IRS auditors come to audit.
Save for Retirement
You will be required to pay for the health insurance and social security if you have employees in your business, but you can reduce the amount of premium and social security by half. You can also pay for retirement plans which are made for self-employed people and write it off next to your tax for personal income.
Get a 2nd Phone Line
Get 2 phones for your office if regularly contact with your clients is a part of your business, since they are deductible. If you do not talk with your clients regularly, you can write off the total costs by keeping records of all your calls and the reasons for making the calls. This will help you deduct them when the time comes for you to pay your taxes.
Deduct Part of the Cost of Your Internet
This is pretty much similar to cost of your phone bill so you can use it to your advantage by deducting some of the cost of your internet usage, if you utilize it for business purposes. Keep in mind that if you use the internet for non-business use as well, then it may be complicated to defend it when you are being audited.
Take a Trip not a Vacation
The travel expenses you undertake for business purposes are 100% deductible and the food you consume on your travel is 50% deductible. Keep records of all expenses and receipts on your business trips as it may come in hand during the audit.
Employ Your Family
You can take advantage of tax benefits by employing your family in your business, and then deduct their salaries if you can provide evidence for their work. You can even benefit from the social security tax if you employ your kids who must be under the age of 17.
Make Justifiable Deductions
Most home business owners go overboard with their deduction which does not always work, since they have trouble coming up with evidence for those deductions. This is why you should only make justifiable deductions who you can back up with evidence when an auditor questions you about it.
Use the IRS Guidelines
A home business is a great experience for you and your family, and will also allow you to benefit from tax benefits and earn extra income as well. The best way to save yourself from embarrassment when you are being audited is by using the IRS guidelines and implementing them in the right way, so that you can maximize the deductions without breaking the law.