Tuesday, November 11, 2008

Tax Deductions For Home Business

By Marie Soriano

Home businesses enjoy more tax advantage than a business that is located in a commercial area. But a lot of home business owners do not take advantage of these tax deductions because they do not declare their exemptions that they are entitled to. So it is important to know all the deductions you can avail of.

The basic concept you need to remember is that any income you may incur is subject to tax. Here is the formula that is applicable whether you are a home business owner or an employee:

Gross Income - Expenses = Taxable Income

But note that the expenses in this case include miscellaneous deductions and the depreciation on your assets; this is where you need to focus on because most of the tax deductions can be found.

To give you an idea of the different items that can be included in your deductions, here is the list of deductions you can include in your expenses, miscellaneous deductions, and depreciation:

Expenses:

Expenses that should be included in the tax deduction of a home business include the payroll, the supplies, the materials, and the interest rate on business loans among others. There are many other kinds of expenses that can be included and you may consult with the IRS or your accountant if a particular expense you incur can be included.

Depreciation:

The depreciation of your assets should likewise be included whether it is the depreciation of your real estate property or equipment for business use. But you should also remember that the IRS has many difference depreciation schedules for these types of assets so you need to know the rules in these types of write-offs.

Miscellaneous deductions:

Then there are the miscellaneous deductions that you can take advantage of. You need to track the different expenses you incur during the whole course of doing business because you will need a proof for each of these transactions when you want to deduct these from the tax you have to pay. Some of the most common miscellaneous deductions you can avail of include auto expenses, books and magazines, cleaning expenses, meals with clients, educational expenses, advertising, and licensing and regulatory payments.

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