Tax Advantage of Running Home Business

The United States tax law encourages business activity by offering many tax benefits to entrepreneurs. Specifically, the tax code provides advantages to small business owners, depending on how you choose to organize your business. Running a home business has its advantages, as home-based businesses qualify for several additional deductions and tax credits. By maximizing these deductions, the home business owner can reduce his tax liability.

Tax Structure

The Internal Revenue Service allows some small business owners to apply the same tax rate for business income and personal income. This allows some small business owners to write off business expenses on a personal tax return and take advantage of deductions and credits not applicable to those who do not own a business. This also allows the small business owner to avoid the double taxation associated with corporations. However, the IRS does limit the expenses that the small business owner can deduct to expenses incurred as a regular and exclusive part of the business activity.

Home-Based Business Tax Deductions

If you run a home-based business, you can expense the business use of a portion of your home. This allows you to deduct a prorated portion of your home’s utilities based on the portion of your home used for business. To qualify for this deduction, your home must be your principal place of business or a place where you regularly meet clients or do administrative work. Additionally, you can only deduct the portion of your home used for business, not your entire home. Examples of deductible expenses include mortgage interest or rent, homeowner´s insurance, property taxes, Internet, telephone, heating and electricity. Additionally the IRS offers a deduction for the business use of a personal vehicle.

Business Expenses

Other business expenses a home business owner can deduct against income include eligible travel and accommodations, meals and entertainment. Additionally, you can deduct any equipment purchased for your home office such as computers, printers and office furniture. Moreover, you can claim a deduction for certain repairs and improvements to your home office and depreciation on capital assets purchased for your home business.

Tax Return Forms

Filing taxes as a self-employed home business owner requires you to complete the regular Form 1040 and the Schedule C. You will itemize all relevant business expenses on the Schedule C form. Additionally, keep all the relevant receipts associated with these expenses in case of a tax audit. Contact an accountant or a tax preparer if you require assistance completing these tax forms. Any fee you pay to an accountant or tax preparer is also tax deductible.

Source : smallbusiness.chron.com/tax-advantages-running-business-home