Information regarding tax deductible business expenses.
It is extremely important to understand what valid tax deductible business expenses are. Otherwise, you can wind up in a lot of trouble or else miss out on precious tax savings.
The IRS states that you can deduct "ordinary and necessary" business expenses. What are ordinary and necessary business expenses?
Well, an ordinary expense is an expense that is common and accepted in your business. A necessary expense is an expense that is helpful and appropriate for your business.
Let's say that you have a network marketing business. An example of an ordinary expense is a business phone or any monthly recurring fees for your business. Vouchers you purchase to hand out to your prospects are an example of a necessary business expense.
Home Business Tax Write Offs
Here are some of the most common tax deductible business expenses:
Business Fees
If you join any business and have expenses such as kits, monthly fees, or franchise fees you may claim them as home business tax write offs.
Business Supplies
This pertains to any items you purchase for business use. Examples of items that are tax deductible are: printers, fax machines, computer paper, pens, business cards, or any other item you purchase to use for your business.
This type of tax deductible business expense also includes larger items such as computers and office furniture. If you purchase a new computer you can also claim depreciation for 3 years.
Make sure to save your store receipts as records of these purchases. It is important to have proof of your purchases in the event of an audit.
Advertising
Another home business tax write off is your advertising expenses. Most advertising is tax deductible. Make sure to save your receipts for your online advertising, radio ads, and newspaper ads.
Home Office
There is a lot of confusion surrounding this area of tax deductible business expenses. We'll give a deeper explanation of this one to make sure you understand.
If you are using part of your home as an office or for business purposes, you are able to claim it on your tax return.
Now, you are not able to use your entire house as a home business tax write off, only the part that you use for business.
How do you determine how much you can claim? What you'll want to do is figure out the percentage of square feet of your house that you use for business.
For example, if your mortgage is $1000/month and you use 12% of your house for business, then you can claim $120/month or $1440/year.
Now, this also goes for your utilities, water, gas, landline phone, and electric as well. The only exception is if you have a phone you only use for business-you can deduct 100% of that cost.
As far as cell phones and internet service go, you claim the amount that you use for business use. So, if your internet use is 50% personal and 50% business, you can deduct 50% of the cost.
Postage
Make sure to keep all of your receipts for postage and shipping expenses paid by you. Even if these items are not a large expense for you, you will still want to use them as a tax deductible business expense.
Mileage and Automobile Expenses
There are many ways that you can use your car/truck as a home business tax write off. One way is to use it for advertising purposes. Another way is to deduct your auto insurance.
Also, you can deduct your mileage. If you drive your car to a business meeting or to the store to buy computer paper, you can deduct the miles that you drove to get there.
You can even use this to your advantage if you have non business stops along the way of your business related stops.
It is so important to keep very accurate, detailed records of your mileage. You will want to keep a small notebook in the car so you can jot down the following information: start and stop mileage and notes about the business activity.
Also make sure to keep your gas and any parking receipts.
Returned Checks and Bank Fees
If you have a check from a customer that bounces and you are unable to collect on it, you can use it as a home business tax write off. Not only that, but you can also deduct any fees your bank charged due to the bad check.
Make sure that you keep all of the important documents such as the returned check and your bank statement showing that you were charged.
Insurance Premiums
If you are self-employed and paying for your own health insurance premiums, you can use it as a tax deductible business expense. Insurance premiums are eligible for 100% deduction.
There are a couple limits on this though. If your deduction is higher than your net profit, you cannot deduct it from your taxes.
And you cannot deduct if you are eligible for any other type of healthcare coverage. For example, if you have the option of being carried on an employed spouse's medical plan, you cannot use it as a home business tax write off.
Don't get stressed when tax time comes! Take advantage of all your tax deductible business expenses to significantly reduce your tax bill. Just ensure that you are keeping detailed records in the event of an audit.
Please remember that we are not tax professionals. Consult a CPA or tax advisor when filing your taxes.
