Economic recession has forced many people who have been laid of to go in business for themselves. If you have recently started a home based business then you might not be aware of tax deductions that apply to you. Your business can be located in an apartment, condo, mobile home or a boat and still qualify for the home based tax deductions.
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.
Your should use your home for business regularly.
- You should be meeting your clients in that part of the house.
- You can have other places of business but your house should be the primary 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.
Deductions can only be taken for the percentage of home used for 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. Having a coffee in your room that you primarily use for business.
It is always a good idea to save all your receipts and bills for at least 5 years. Home based businesses have a higher probability of being selected for an audit and you should always be able to substantiate your claims. Please consult with your tax preparer for more information.