Owning your own home business can be very rewarding. You have the chance to set your own hours and be your own boss. Unfortunately, with home businesses also come home business taxes. There are a number of tax breaks that you can claim for your business and many home business owners are unaware of these breaks. They simply continue to pay more taxes each year than they should. You may worry about being audited when it comes to claiming certain items on your taxes. After all, the IRS is infamous for auditing, particularly those with small businesses. There are ways that you can enjoy a number of tax breaks and protect yourself in the event that you do get audited by the IRS.
You should always keep a journal of your business expenditures and income. If you ever do get audited, this journal will be a priceless piece of information. If you are audited and do not have the records to back up your deductions, you could end up paying more in taxes and penalties than you can afford. The best way to avoid this is to always log down any financial activity for your home business. If you purchase printer paper then you should log it down. If you have to buy a new computer, log it down. Write down everything that you buy and attaching receipts to the log is also a good idea. You can either attach the original receipt directly to your log or scan it into your computer and save all of your business receipts on a disc. All payments to your business and all money spent from your business should always be logged in your journal. This includes mileage, telephone calls and all other costs.
When you file your taxes, be sure that you are receiving a tax credit for your workspace. If your business is confined to a specific room that is dedicated for business only, you can write off this space. Even if you have only partial space of a room, the space can be calculated as a percentage of your entire home area and written off. This percentage also includes other costs that are shared with your personal home area such as telephone, rent or mortgage, insurance, water and electric and other utilities. Expenses that have nothing to do with your business cannot be claimed and if you attempt to claim them, you could be asking for an audit. Be sure that you claim only those expenses that directly relate to your home business.
If your family members typically help you with your home business, you can pay them and deduct their salaries from your taxes. If your spouse or children help out then by all means you should receive the deduction. Children under 17 are not subject to Social Security tax which is an added bonus to you. Remember that just because you operate your business from home does not give you carte blanche to go insane with your deductions. Make sure that you are listing legitimate business expenses when taking these tax credits. If you are considering a deduction, think first about how you can prove this as a business expense. If you cannot legitimately prove a deduction then do not take it. You can save yourself a world of headaches if you do not try to cheat the system.
Having your own home business can be rewarding for a number of reasons. If you are unsure of how to proceed with your home business tax deductions or what specific deductions you can claim, spend some time on the IRS site and go over the details of home business taxes. You can hire an accountant if you need to do so just to make sure that you are not claiming expenses that are not legitimate.