A 2013 article from Small Business Trends stated that 69% of entrepreneurs in the United States start their businesses at home. This makes perfect sense. Many new businesses are in part or entirely operated online. As people buy more and more goods and services online, there’s less need to take the expensive risk of investing in a brick and mortar business. Moreover, if you know what you’re doing, you can help yourself – and your accountant – come tax season.
Although it takes additional time and a few extra steps, you can really help yourself by understanding the upside of claiming a deduction.
First if all, you know need to know what you can and can’t deduct. It’s a good idea to check with the IRS regularly to see if these things change, but here are a few things you can deduct.
The cost of a home office
In order for this deduction to pass any potential audit, you need to make sure the space you call your home office is a separate space or separated and dedicated space in your home. It doesn’t have to be its own room, but it can’t be a multipurpose space, either. For example, many people use an empty additional bedroom as a home office. Others have a separate studio or redesigned barn they use for a home office. If you are using a corner of your basement, that’s fine, too. Your home office doesn’t have to have four walls and a door.
But you can’t set up computer desk in the corner of a guest bedroom or nursery and call it your home office. The key here is that it must be a regular and exclusive space you use to run your business.
You must also be able to show that your office is the principle place of your business. Even if you meet clients other places, you need to be able to show that you do the majority of your work in your home office.
Keep in mind that the IRS only allows up to 300 square feet. But they do allow for $5 for every square foot up to 300.
Technology and technology purposes
It’ll be a hard sell to convince anyone that if you have one computer that you are only using it for business purposes. If you do that, though, you can deduct the cost of depreciation.
If you decide to purchase a dedicated business computer, you can write the cost of it off. After that, you can write off the cost of depreciation. You can even deduct based on the percentage of use. TurboTax is very helpful with this.
You can also write off the cost of a dedicated phone, whether it’s a cell or landline.
It’s worth the hassle
When you’re starting a new business, whether you operate it out of your home or not, every penny counts. Staying on top of and taking advantage of tax laws can help turn a slow first year into a much better second year.
The most important thing to keep in mind is that keeping track of all your expenses, and keeping all of your business receipts will make it easier in your end of year accounting and tax preparation. You will save yourself and your accounant time, money, and headache down the road.