1) If you own
a sole proprietorship web-based business and recently bought a new house and utilize 13.5%
of the living space as a home office. What can you write-off, since you utilize 13.5% of
the living space as a home office?
Assuming you qualify for the home office deduction, you can deduct 13.5% of the following
home-related expenses:
1.
Interest portion of the mortgage payments (but not the principal portion)
2. Property taxes
3. Homeowner's insurance
4. Utilities
5. Repairs & maintenance
6. Depreciation of the purchase price
Use Form 8829 to calculate
the deduction, then transfer the total expense amount to Schedule C, Line 30.
The home office deduction has gotten a lot of attention over the years. There are
several requirements that must be met to claim this deduction. I'm not trying to scare you
away, just making you aware that you should do your homework. Or consult a tax
professional, of course.
Form 8829 is not for the numerically-challenged. I strongly recommend you do a little
research on this. Read the form instructions carefully; IRS Publication 587 is also
helpful.
2) If you start a home business and haven't made
money yet, what can you deduct at tax time?
This is common question. When it comes to business
expenses, the tax code is quite generous -- you can deduct any expense that is
"ordinary and necessary" to your business. Here's how the IRS defines these 2
requirements:
By "ordinary", the tax code simply means an
expense that is "common and accepted" in your type of business.
By "necessary", the tax code means an expense
that is appropriate and helpful for your business. And here's a key concept: An expense
does not have to be indispensable to be considered necessary.
For more specific examples of typical expenses, get a copy
of Schedule C, the form that you'll use to report your Sole Proprietorship on your
personal income tax return. There's plenty of categories listed here -- some are obvious,
others are not.
To get more small biz tax info than you'll know what to do
with, here's a couple of free resources:
1. My bi-weekly ezine, "Make My Life
Less Taxing." To subscribe, visit http://www.YouSaveOnTaxes.com
-- for subscribing, you'll get a free ebook on taxes that includes a chapter on "How
To Make Sense Out Of Nonsense: The Small Business Owner's Guide To The Wild & Wacky
World of Taxes" (and whether you realize it or not, in the eyes of the IRS, a person
like yourself who has just started a home business is considered a "small business
owner.")
2. Check out http://www.taxmama.com -- without a doubt, the best
website on taxes I've ever seen. |
