5 Tips for Optimizing Your Home Business Tax Deductions

Are you taking advantage of your US home based business tax deductions?The timing could not be better for working from home. In our current economic climate, having a home based business is not only a great way to earn additional income, it has great tax benefits in the US. Aside from mortgage interest deduction on your primary residence, operating a home based business can save you hundreds, even thousands of dollars on your Federal tax bill. This is the time of year where we not only set our goals, but start preparing to file our taxes. Here are 5 tips to consider to optimize your federal return:1. Get organized and automate your record keeping.Like it or not, one of the necessary parts of being a business owner is dealing with expenses, in other words accounting, a task that many of us dread. It is crucial that you maintain good records since your documents (bills/receipts) are your proof of your deductions. Keeping good records doesn’t have to be hard or expensive. Most of us starting out can’t afford to hire an accountant, but all you really need is a file to store your receipts. We’ve used the accordion ones to categorize our expenses to make it simpler at tax time. If you can afford it, we recommend a business type of software like Quickbooks or MS Money (and yes the cost of the software is deductible) and enter your bills and banking info as you go; this will save you hours and hours of time when doing your taxes and in many cases, the data can be imported to a tax program with a click of the mouse.2. Set up a designated area in your home as your office.Did you know that if you qualify, you can deduct a percentage of your home by having an area as an office? If you can, a spare room is ideal, but you can even designate a space in your home (like a desk cubicle) and deduct a portion of your mortgage/rent and associated home utilities if your space is used exclusively for business. For example, a spare room could be equal to 15% of the total space of your home. If used 100% for business, you could deduct 15% of your utilities, home owners insurance, property taxes, rent/mortgage etc on your return. Detailed information on a home office deduction can be found in IRS Pub 587.3.Deductions for office equipment and furniture.Did you buy a new laptop or printer for your business in 2010? What about that desk or file cabinet? This year, the 179 Deduction limit is up to $500,000.00 for qualified expenses. You can write off the entire cost of these items if used 100% for business.4. Deductions for the cost of doing business.Did you buy office supplies? Postage? Business cards? What about advertising costs, web hosting fees, professional fees, software, education expenses (if directly related to your business)? These are some examples of expenses that you can include in your home business deductions. See IRS Pub 535 for additional information.5. Travel, meal and entertainment expenses.In 2010, we took two trips for business events. We will be able to deduct our air fare, hotel, meals, and fees associated with these trips, which will save us hundreds of dollars on our tax bill! Do you use your vehicle for business? If so, did you know you can deduct 50 cents per business mile? This is a DECREASE from 2009′s 55 cents per mile. IRS Pub 463 has additional details on this specific expense category.When you add up all the possible deductions, you will be surprised (and we guess glad) to see how much you can save on your tax bill. We know tax preparation can be a daunting experience for many, and most of us can’t afford to hire a tax accountant. That’s where tax preparation software saves the day. There are several titles available, simply do a search on “US tax software” and you’ll get several to choose from. We personally have used Turbo Tax (yes, the software cost is deductible) for several years and it makes figuring out your business taxes a breeze. It saves hours of time pouring over the IRS publications and helps you find deductions you may not have otherwise thought you had available.The good news this year? Taxes aren’t due until April 18th, 3 extra days! Don’t let the task of filing your taxes be one you hate; with your home based business, you may find tax time a pleasant experience, especially when you see how much you save!

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