Wouldn't it be great if you could deduct some of your home costs as business expenses on your federal income tax return? Along with the regular business deductions you can take, you may be able to deduct part of your home mortgage interest, utilities, and repairs of your current home.
The important thing to know is what a legitimate deduction is and what it is not, since small or home based business owners are three times more likely to be audited than non-small business or home based business owners.
You can deduct a portion of your home mortgage interest. But you can only deduct for the portion of your home that is used for business, and only business! For example, if you have a 1000 square foot home and you are using a spare bedroom that is 100 square feet, and only using it for your home office, you can deduct 10% of your mortgage interest. (100 feet is 10% of 1000). But if you also use it as a guest room, the whole 100 feet cannot be considered business space.
Let's continue to use the 100 square feet as our business area, now we can deduct 10% of the house insurance, home repairs, real estate tax, security systems, utilities, and services like trash removal and phone, and depreciation.
Other deductions that are allowed for a home-based business are office supplies and equipment. This could be paper, software, industry magazines, fax machines, and computers. Office furniture can be deducted at 100% the year it is purchased or a portion can be depreciated over a seven-year period.
If you use your car for your business, again you can take some deductions. In 2006 the federal government allows 44.5 cents per mile as a deduction. Mileage starts at your home for home based business. Keep accurate records! Gasoline, repairs, insurance, payments or lease payments may be used at a deduction, but again only at the rate your car is used for business, not personal use.
Travel can be another deduction. But if you take your family, only your costs can be deducted. So only the cost of the room for a single, and only the cost of your meal can be taken as a home based business deduction. Their costs are separate.
Business meals and business entertainment can be taken as a deduction at 50% of the cost. Make sure your keep records of the cost, the guests and their relationship to your business. If you put on a party for your employees, you can deduct 100% of the costs.
If you pay health insurance premiums, you can deduct 100% of your premium. You do not qualify if you are eligible under a spouses health plan. Other deductions include payments to a SEP or IRA. Social security payments, of which you pay all, can be deducted at ½ of your total contribution.
The most important thing you can do is to keep accurate records of your expenses that qualify as a home based business deduction. Then file your taxes with a knowledgeable tax preparer or take advantage of an online tax preparation website.
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