Balancing Small Business

Did you know that if you use your home for business, you may be able to claim some of your expenses as a tax deduction? This applies whether you rent or own your residence and can be a great advantage when you’re launching an enterprise. Here are some tips about what’s allowable and how you can calculate your deductions.

 

1. Regular and Exclusive Use: As a general rule, you must use a part of your home regularly and exclusively for business purposes. This means that if you utilize your dining room table as your work desk and for eating meals with your family, you can’t claim a portion of your dining room as your office. The area of your home that you use for work does not have to be marked off by a permanent partition. It must be

•Your principal place of business, or

•A place where you meet clients or customers in the normal course of business, or

•A separate structure not attached to your home, like a studio or garage

 

If you use part of your home as a daycare facility or for storage of inventory or product samples, however, you’re exempt from the exclusive use requirement.

 

2. A deduction limit applies if your gross income from the business use of your home is less than your expenses.

 

3. Employees must meet additional rules to claim the deduction. For example, your business use must be for the convenience of your employer and not for yourself. For instane, Justine is a sales representative whose employer provides her with an office to complete her paperwork but she prefers to take hers home. Justine would not qualify for a home office deduction.

 

4. The simplified option of calculating your expenses uses the square footage of your working space multiplied by $5, to a maximum of 300 square feet. So if your office is 200 square feet, your allowable deduction is 200 x $5 = $1,000.

 

5. The regular method of calculating your expenses allows you to claim certain expenses like part of the mortgage interest, taxes and utilities, or a portion of your rent if you don’t own your home. The amount you can deduct usually depends on the percentage of your home used for business.

 

Determining eligibility can be complicated. A qualified tax preparer will ensure you take advantage of all deductions.

At Poe's Accounting Services and Lightning Tax Services, we specialize in simplifying our client's financials and taxes and taking the anxiety and confusion out of the accounting process.