As tax time approaches, many home-based business
owners begin completing their forms or paying
their accountants with trepidation. This nervousness
comes from two sources: a fear of being audited
and a fear of having to pay a lot. For the most
part, both of these fears are unfounded.
one, audits are rare. In fact, only 0.5% of
taxpayers are subjected to audits every year.
And if you do beat the odds, keeping good records
and maintaining receipts will help you weather
the IRS storm.
you have not control over whether or not your
return is chosen for an audit, but you can control
how much you are going to owe the government
this year. Most people who own small or home-based
businesses end up paying more than they should
in taxes simply because they are not taking
advantage of all their deduction possibilities,
even those that are right around them every
may not realize it, but one of your biggest
potential tax savers is sitting in your garage
right now. Most people realize that their car
can be a tax write-off if it is used for advertising
purposes, but the majority of home-based business
owners don't realize that it they may also be
eligible for deductions as well.
example, if you drive your car to the post office
to buy stamps for your business or if you drive
to the office supply store to stock up on paper
clips, you can claim that mileage on your taxes.
You can even claim the mileage if your business-related
stop was made on the way to picking your daughter
up from ballet class or dropping your dog off
at the vet.
addition, you can write-off other automobile
related expenses such as gas, insurance, and
parking costs if they pertain to any business
sure to keep records, however. You will want
to have a small notebook in your car at all
times so you can jot down your start and stop
mileage as well as a note about the business
activity in which you are engaged. Keep all
gas, parking, and insurance receipts as well
if you plan to claim
those as business expenses.
you pay your children an allowance, you can
also count these as deductions if you hire them
as part of your staff. Any business owner knows
that the money he or she pays to employees does
not count as part of their profit. The same
is true for home-based businesses.
business owners also know they can find employees
among their own family without raising any eyebrows.
The same is true for home-based businesses.
You can hire your fourteen year old to help
you answer phones, file, or type up correspondence.
You can offer your eight year old a job emptying
wastebaskets, straightening your office, etc.
Then you pay them a certain amount of money
every week for their labor.
keeping records is essential. Keep track of
the hours your children work for you as well
as the activities they do. Pay them, if possible,
by check from your business account. You can
set up a checking or savings account for the
children in which the money can be deposited.
if you worked in a small office building you
could deduct the amount of rent you paid for
that property from your taxes, as well as the
costs of all the equipment and expenses. Well,
just because you work out of your home that
does not mean you lose out on those deductions.
are you have a small area of your home that
is set aside for your business purposes. Now
while you cannot write-off the cost of your
entire house, you can write-off the cost of
you do is determine what percentage of your
home's total square feet is dedicated to your
business. For example, if your office takes
up 10% of your home's total area and you pay
$600 per month for the property, you can claim
$60 per month as a business expense which would
be $720 per year.
same formula works for your utilities, such
as electricity, water, and telephone (unless
you have a separate line just for business).
All of your equipment - your computer, printer,
scanner, cell phone, printer ink, etc - is also
to keep track of those expenses and hold on
to your receipts in order to claim them on your
it comes to tax time, no home-based business
owner needs to feel afraid. By taking advantage
of all your potential deductions and keeping
thorough records, you can not only significantly
reduce your yearly tax bill, but you can also
prepare yourself in the rare event you may be
chosen for an audit.
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