Tax Tips for Home-Based Business Owners

As tax time approaches, many home-based business owners begin completing their forms or paying their accountants with trepidation. This nervousness comes from two sources: a fear of being audited and a fear of having to pay a lot. For the most part, both of these fears are unfounded.

For one, audits are rare. In fact, only 0.5% of taxpayers are subjected to audits every year. And if you do beat the odds, keeping good records and maintaining receipts will help you weather the IRS storm.

Obviously you have not control over whether or not your return is chosen for an audit, but you can control how much you are going to owe the government this year. Most people who own small or home-based businesses end up paying more than they should in taxes simply because they are not taking advantage of all their deduction possibilities, even those that are right around them every day.

Your Automobile

You may not realize it, but one of your biggest potential tax savers is sitting in your garage right now. Most people realize that their car can be a tax write-off if it is used for advertising purposes, but the majority of home-based business owners don't realize that it they may also be eligible for deductions as well.

For example, if you drive your car to the post office to buy stamps for your business or if you drive to the office supply store to stock up on paper clips, you can claim that mileage on your taxes. You can even claim the mileage if your business-related stop was made on the way to picking your daughter up from ballet class or dropping your dog off at the vet.

In addition, you can write-off other automobile related expenses such as gas, insurance, and parking costs if they pertain to any business related activity.

Be sure to keep records, however. You will want to have a small notebook in your car at all times so you can jot down your start and stop mileage as well as a note about the business activity in which you are engaged. Keep all gas, parking, and insurance receipts as well if you plan to claim those as business expenses.

Your Family

If you pay your children an allowance, you can also count these as deductions if you hire them as part of your staff. Any business owner knows that the money he or she pays to employees does not count as part of their profit. The same is true for home-based businesses.

Most business owners also know they can find employees among their own family without raising any eyebrows. The same is true for home-based businesses. You can hire your fourteen year old to help you answer phones, file, or type up correspondence. You can offer your eight year old a job emptying wastebaskets, straightening your office, etc. Then you pay them a certain amount of money every week for their labor.

Again keeping records is essential. Keep track of the hours your children work for you as well as the activities they do. Pay them, if possible, by check from your business account. You can set up a checking or savings account for the children in which the money can be deposited.

Your Home

Obviously if you worked in a small office building you could deduct the amount of rent you paid for that property from your taxes, as well as the costs of all the equipment and expenses. Well, just because you work out of your home that does not mean you lose out on those deductions.

Chances are you have a small area of your home that is set aside for your business purposes. Now while you cannot write-off the cost of your entire house, you can write-off the cost of that area.

What you do is determine what percentage of your home's total square feet is dedicated to your business. For example, if your office takes up 10% of your home's total area and you pay $600 per month for the property, you can claim $60 per month as a business expense which would be $720 per year.

The same formula works for your utilities, such as electricity, water, and telephone (unless you have a separate line just for business). All of your equipment - your computer, printer, scanner, cell phone, printer ink, etc - is also tax deductible.

Remember to keep track of those expenses and hold on to your receipts in order to claim them on your taxes.

When it comes to tax time, no home-based business owner needs to feel afraid. By taking advantage of all your potential deductions and keeping thorough records, you can not only significantly reduce your yearly tax bill, but you can also prepare yourself in the rare event you may be chosen for an audit.

Vishal P. Rao is the owner of: http://www.work-at-home-forum.com/ An online community of people who work at home.

---

Getting A Second Extension to File 2004 Taxes

Millions of people file tax return extensions every year. The... Read More

Tax Trap #5 -- Ignoring The IRS (and the 5 best ways to contact them!)

We all love to criticize the IRS, don't we? And... Read More

Need a Copy of Your Tax Return Information?

Taxpayers have two easy and convenient options for getting copies... Read More

Save Money on Taxes - Is the Only Way to Get Your Tax Savings is to Sleep With an IRS Agent?

Tilting the Tax Laws in Your Favor.In order to accelerate... Read More

SFR Substitute for Returns: IRS Action on Non-Filers

In the latest Star Wars episode, the evil empire executes... Read More

1031 Exchange Rules and Requirements

Following is a reproduction of the IRS's rules and requirements... Read More

IRS Certifies 2006 Toyota Hybrid for Clean Fuel Deduction

The Internal Revenue Service has certified the 2006 Toyota Highlander... Read More

Access to E-records by Taxing Authorities: A Case for Pakistan (Part I)

Background issues of access to recordsTo assess the records at... Read More

How to Check the Status of Your Tax Refund Online

So, you were pleasantly surprised to learn that you are... Read More

Tax Records - What You Should Keep And For How Long

Many taxpayers are confused about how long they should keep... Read More

Business Tax Loophole: Leasing Assets To Your Corporation

While there are many equally valid reasons to incorporate, saving... Read More

How to Cut Duty Cost and Increase Profit as an Importer

Import duties continue to be significant elements in the cost... Read More

Rearrange Your Affairs For Maximum Tax Savings

One way to maximize your business profits is by reducing... Read More

What to Do If You Can?t Pay Your Taxes

The end of tax filing extensions is quickly approaching. What... Read More

How To Set Up A Tax-Saving Bookkeeping System

One of the most important, but least understood or appreciated... Read More

What is a Federal Tax Lien?

A Federal Tax Lien (FTL) is a legal instrument that... Read More

IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters

The IRS has obtained civil injunctions against more than 100... Read More

10 Thoughts on Tax Offer in Compromise

Beware of advertisements that claim to settle tax debts for... Read More

Anticipating Your IRS Refund Can Cost You Plenty

While accountants are reaching for aspirin, millions of Americans are... Read More

Donating Cars To Charity - New Tax Rules

On June 3, 2005, the IRS released guidance on charitable... Read More

E-commerce Taxation

The means and types of businesses have transformed with advent... Read More

Keeping Your Own Money ? NOT Handing It Over To The Taxman

Most people trying to make a crust online (or offline... Read More

Tax Deductions - Mr. C.P.A. Can I Deduct a Pizza? You Too Can Deduct Your Fun By Using Tax Tips

Recently, I stumbled across a concept that could change your... Read More

Small Businesses Filing Amended Federal Tax Returns to Recover Money

Small Businesses Filing Amended Federal Tax Returns to... Read More

Rental Property Tax Deductions

Own residential rental properties? This article discusses how income from... Read More

Euro Tax Haven Threat

Media reporting of a new EU savings tax directive has... Read More

Surprising Truths About Tax Preparers

Choosing the right tax preparer for your business is a... Read More

10 Tax Tips to Reduce Costs and Increase Income

No one likes paying tax. Everyone understands that tax is... Read More

Understanding Basic Tax Terms

If your like many, you don't always understand what people... Read More

Employment Taxes ? Depositing With The IRS

If your business has employees, you must pay employment taxes.... Read More

Fraudulent Tax Shelters ? KMPG Goes Down Hard

In the largest criminal tax case ever filed, KMPG has... Read More

2005 Ford Escape Hybrid Certified For Clean-Fuel Deduction

If you are environmentally conscious and purchase a 2005 Ford... Read More

How To Get An Extension To File Your Business Tax Returns

Yes, the tax season is upon with the first filing... Read More