How to Figure Out What to Claim for Your Home Business Tax Deduction

by Michael A. Anderson
home office

income taxes

People thinks when it comes to taxes, paying them for income earned on a home business can be brutal. After all, there is no company there to help you pay your Social Security taxes and your income taxes. The brighter side of life is that paying some expenses related to your home business that you can deduct. The process can be kind of pain, but if you make sure you have all of the proper forms, you can successfully get your deductions figured out and keep more of your money. Keeping a good record of what we must have is when to have them to a tax professional (deductible on your home business records, but not for other income), or purchase some software to help you sort it all out.

The trickiest part of the business is figuring out the deductions for items you use for both business and personal use. Computers, Internet connection, and cars are all among these tricky issues. You will be required to estimate about how much of the time such items are used for business. This means that you will need to pay close attention to how much of the time your computer is used so that you can pro-rate it correctly. This is usually expressed as a percentage (My computer is used 80% of the time for my home business).

No Credit Is Given For County Taxes

Cars are a little easier to figure out when it comes to mileage. There is also a way to calculate monthly car payments into the deduction, based on how much of the time the car is used for business. For mileage, all you have to do is keep track of mileage spent when you are using the car for work. When I have to travel for a freelance assignment, I keep track of my mileage for tax purposes.

Health insurance can be deducted if you are not getting it through someone else’s company. If you want to deduct a private insurance plan, it needs to be set up for the home business. Since I am a sole proprietor, I set up our plan (about $250 per month) through my name and have my husband and son listed on my plan, since my husband is not offered health insurance through his work. Health insurance can only be deducted if you have it set up through your business.

If you use a home office, you need to figure out how much of your home’s total square footage is used for work. This is also expressed as a percentage. You divide the square footage in your office by the total footage of your home. If you use the home office for other things, however, it can mean that you have to use a formula to figure out how much you can deduct. Even if you pay rent each month, you can claim a percentage of the rent paid for home office space. Utilities, interest, maintenance, and other home-related expenses can be deducted using this formula as well.

home office

Other items purchased for the business can be deducted. A desk for the home office, or a headset for the office phone count as business expenses. Just make sure that you buy them for your business, and do not use them for other things. Otherwise, you will have to figure a percentage of use and deduct based on that.

Finally, if you are reimbursed for expenses paid, you cannot claim them. Many of my freelance assignments that include travel reimburse me for food and lodging expenses. These cannot be claimed as deductions because I do not experience a net loss through the expense. It is given back to me, so it is as though I never spent the money at all. If you are reimbursed for mileage, you cannot claim that mileage on your taxes, either.

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