However, the government does provide solace to those who have an entrepreneurial spirit, and this solace comes in the form of tax breaks. There are many possible tax deductions for home businesses; you simply have to be well-informed about them.
Why should you go through the trouble? Well, because you'll earn more money that way. By knowing all the possible tax deductions that you can take, you'll come away with more of the benefits that your business generates, instead of getting cleaned out by the government. When it comes to taxes, make no mistake about it, knowledge is power.
If you run a home business, some of the possible tax deductions for you are:
Home office costs, such as those that involve office repairs and maintenance. Expenses racked up through janitorial services, for example, when shown to be needed by the business, are deductible, as are waste management and garbage disposal services. Business furniture and equipment may also qualify for deductions in their year of purchase, as long as the amount does not exceed a certain limit.
Utility costs, such as electricity and water. The deduction applies to those areas that are used regularly and exclusively for business.
Telephone costs. This only applies if you have a separate line for use in business. A single line that is used for both business and personal calls does not qualify. However, if you make long distance calls and/or incur fax transmission fees, those expenses are deductible not matter which type of phone you use.
Rent or lease payments. A percentage of your rent, lease, or mortgage interest payments can be deductible provided that you are using the property regularly for business purposes.
Employee wages and employee benefits. If you are an employer of labor, you can deduct a portion of your salary and benefit expenses. Employee education and training costs are also deductible.
Education costs necessary in your line of work. This applies especially to professionals. Those who need continuing education to maintain their expertise may deduct the cost of this education from their tax returns.
Real estate taxes on business property. A portion of real estate taxes are considered deductible by the IRS.
Personal expenses. Some personal expenses, when conducted in conjunction with business affairs, are deductible. A portion of your automobile expenses, meal allocations, and travel and entertainment costs may qualify for deduction, as log as they are related to your business.
A final reminder: Try to maintain as accurate records as is possible. Document your deposits, income, expenses and deductions. This way, you will have proof validating your tax deductions. Because tax laws are complex and often change, it is often advisable to consult a professional. This will allow you to claim as many possible tax deductions for home businesses as you can.
Use this checklist to make sure your bookkeeping is maximizing your travel, meals and entertainment deductions.
____ Get reimbursed for business expenses you pay for personally. Ever been to a restaurant that only takes cash? Or taken a taxi that only accepts cash? Or misplaced your business credit card and had to use your personal credit card? These are just a few examples of when we have to pay our business expenses with personal funds. It's easy to miss these expenses so keep an envelope handy and put all of your receipts in this envelope. Then you've got it handy when you complete your expense report.
____ Code meals that are 50% deductible to a separate account to keep them distinct from other expenses that are not subject to this 50% rule. Many times I see just one meal account in the chart of accounts. The problem with this is that while meals are generally only 50% deductible, some meals are 100% deductible. The mistake that I see most often when I review a prospect's prior year tax return, is all meals are treated as only 50% deductible (because they are all coded to one account) and there is no strategy to identify meals that are 100% deductible.
____ Code meals that are 100% deductible to a separate account to make sure these are deducted in full and not combined with meals that are only 50% deductible.
____ Code your entertainment expenses to a separate account from meals and travel.
____ Code your travel expenses that are not meals and entertainment expenses to a separate travel account. Too many times I have seen an account named "Travel, meals and entertainment" (it happens to be a default account in a popular bookkeeping software) and everything gets lumped into this account. Business travel is 100% deductible so separate it out as part of your bookkeeping system. Otherwise, you will have to sort through that account at the end of the year, or worse, you may forget to sort through that account and everything in the account is treated as only 50% deductible!
____ Use the memo section in your bookkeeping software to make notes about who, what, when, where, how much and the business purpose of your travel, meals and entertainment expenses. This is a great way to strengthen your documentation.
How does your bookkeeping match up?
Proper bookkeeping will boost your tax deductions, particularly for travel, meals and entertainment. This is an area where deductions are regularly missed and not properly documented, but once you know the rules and use my system, you'll find more and more deductions!
** Important Tip! **
Keep your bookkeeping current! What does current mean? One easy way to make sure you are staying current is to review your Balance Sheet and Profit & Loss Statements once a month. Do this review when you receive your monthly bank statement. Simply reconcile your bank statement and then review your financial statements.
Knowing how to maximize your deductions for travel, meals and entertainment is a key part of a successful tax strategy.
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Both Enrique Villalobos & Tom Wheelwright are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Enrique Villalobos has sinced written about articles on various topics from Internet Marketing, Home Based Business and Photography. Enrique Villalobos is the owner of , which provides free articles and resources about working from home. Visit it now and download th. Enrique Villalobos's top article generates over 14800 views. to your Favourites.
Tom Wheelwright has sinced written about articles on various topics from Legal Matters, Finances and Management. Tom Wheelwright is not only the founder and CEO of Provision, but he is the creative force behind Provision Wealth Strategists. In addition to his management responsibilities, Tom likes to coach clients on wealth, business, and tax strategies. Along with. Tom Wheelwright's top article generates over 8100 views. to your Favourites.