Home-based business owners may not be aware that there are many ways to cut their tax bill. Many tax breaks are available for home-based businesses, here are some tips for taking advantage of these allowable business expenses.
Business structure
Sole proprietors must pay self-employment taxes. Forming a corporation or another business entity like an LLC and electing to treat it as an S Corporation may help reduce self-employment taxes. S Corporations allow home-business owners the opportunity to pay themselves a “reasonable salary” and treat any remaining profits as a profit distribution, both of which are not subject to self-employment taxes.
Home office, utilities, and office supplies
For home offices to qualify as a legitimate business expense, it must be used exclusively for business activities. If you’ve got a dedicated room for an office, or even a portion of a room, you’ll be able to deduct some of your housing costs. In the past, you had to calculate percentages for a deduction. Home-based business owners now use a simplified method in which they claim $5 per square foot of an office, up to 300 sq. ft.
In this circumstance, taxpayers may also deduct a portion of utility bills. This requires a computation based upon deducting a percentage of the office’s square footage. Using the same theory, the Internet bill of a home-based business, may also be deducted in part.
Other office equipment and supplies like bookcases, desks, chairs, computers, lighting, or other office furniture are allowable deductions. Office supplies like paper, printer ink, toner, postage, and other office sundries are all fully deductible.
Travel and meal expenses
- Any transportation costs (plane tickets, bus fare, taxis, airport parking, rental car)
- Lodging and tips
- 50% of meals on business days
Trips to meet clients, work outside the home, purchase work supplies, and any other job-related activity are deductible. That includes a standard mileage deduction, parking, and tolls.
Meals with a client are deductible, but only to the extent of 50% of their costs.
Benefits including health insurance and retirement plans
Self-employed individuals (including sole proprietors) may be able to deduct the cost of health insurance for themselves and their family. However, insurance may not be deducted for any period of time if a taxpayer-employee may participate in an employer-subsidized plan, even through a spouse or partner).
Putting away money in a tax-deferred retirement plan is a great device to lower your taxes. An experienced tax attorney can help any home-based business owner set up a plan.
If you operate a home-based business in the New York, New Jersey, Connecticut, Tri-State area and want to know how to maximize your business deductions, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, please call 212-490-0704.
