Don't Forget These Home Based Business Tax Deductions!
Just a little more than two weeks and then the year will be gone. If you’re looking for a quick fix to a tax problem, look to your business! Or, if you don’t yet have a business, it’s not too late to start your own home based business.
To start a business, and have a legitimate one in the eyes of the IRS, you’re going to have to prove that it is real. That means you have a profit motive and that you run it like a real business with good books and records. If you’re not yet making a profit, you need to be able to show that you are making changes so that you will some day make a profit. You’re hiring good advisors, taking classes, making changes, tracking your progress, whatever it takes to push the business to the next level. In other words, you’re taking care of your business.
Regardless of whether your home based business is an MLM, consulting firm, affiliate marketing company, or any of the other thousands of possibilities for business, you have a great source for business deductions. Unlike investments, a business loss is fully deductible against your other income. So, don’t be afraid to wrack up the legitimate business deductions.
A business deduction is something that is “ordinary” and “necessary” to the production of income. So, if you have a business as a screenwriter, going to the movies is a deduction. If you have a business as a DJ, iTunes charges are deductible. But, as a CPA, I normally can’t take a deduction for going to the movies or buying music. (I can, however, buy music to play in my office and take a deduction for it.)
Your home office, as long as it is a space that is exclusively and regularly used for business is deductible. So is your furniture, computer, ISP, desk, chair, filing cabinet and everything else in that space that is used for business.
When you go to the local coffee shop and get a latte and a bagel to eat at your desk, the cost of that is 100% deductible. That’s because you’re now working for the “benefit of the employer.” If you get a meal to eat at your desk during lunch - same thing - 100%.
And don’t forget the use of your auto for business purpose, travel, paying your kids for work in the business - the list goes on.
In fact, it’s more of a question of what do you spend money on and how could it be a legitimate business deduction?
Delicious
Digg
Reddit
TechnoratiTrackback URL for this post:
- Diane Kennedy's blog
- Sign in to post comments
- Email this page
Please expand on the eat-at-your-desk comment! If I eat a “tv” dinner at my home office desk while working on my new business, can I still deduct it? Or only if I buy it ready-to-eat on the way home? Ths could be big for me, since I’m usually working while eating. And if not, I’m reading trade journals while eating, which is really just another form of working…. Thanks.
Thanks for the question. I think a lot of people will have the same issue.
If you are at work “for the benefit of the employer” which means you have an active business, then you get 100% deduction for meals. So, if you’re pursuing brand new biz opps that won’t work but if you are looking to expand your business, that works. If you’re reading trade journals related to your business at your place of work (desk, home office) that works. If you’re doing it in another room, that might be a little more sketchy. Although if you have a meeting place, for sure it would work.
As an example, I had a client who had a personal chef who made prepackaged meals for the week. She always ate one of the meals for lunch at her desk or during meetings with her staff. We pro-rated the cost of the personal chef to show the cost of meals that related to the business meals at the office.
Another client of mine had a separate office (separate from his home) and they put in a kitchen. They brought someone in to cook lunch for everyone every day (if they wanted). That cost was 100% deductible.
Interesting and very timely info. So if I have this straight, this would be a business expense that an individual pays for and claims on their Schedule A deductions.
How would this change if the business reimburses the employee for the expense instead of the individual claiming it?
In the above cases, my client owned her own company (basically was an independent contractor). Otherwise, you’re right it would be an employee expense and that would be a limited deduction (only 50% and subject to miscellaneous deduction rules)