Home business tax deduction
People who have a business from their home or are self-employed should take full use of the provisions made under the different home business tax deduction laws. These deductions include:
1. Home Office: A home office is defined as the part of the home, which you use solely for your business’s needs. You are allowed this deduction if you use this office on a regular basis and only for business. Indirect business expenses and depreciation can also be deducted.
2. Car: If you use a vehicle to conduct your business then you are allowed the deduction of the business cost of the car. Also you are allowed to deduct any operating and maintenance expenses for car. The deduction can be based on actual costs or off of the IRS standard business mileage rate.
3. Personal assets: Tax deductions can be claimed on a deduction for personal assets that you use in running your business. These can be things like computers, scanners, copiers, fax machines, etc. However you have to qualify the percentage of use.
4. Business Travels: Expenses incurred on airline travel, hotel rooms, internal transportation, shipping and even tipping are tax deductible. Meals are only deductible for half the total amount. The travel costs of an employee, client or partner are also deductible.
5. Gifts and Entertainment: Being in a business with clients almost guarantees having to entertain your clients and customers. Up to 50% of your business-entertainment expense, inclusive of meals and tickets, are tax deductible. In cases there may be lavish gifts given to important clientele, and in this case the entire cost of the gift is deductible.
6. Retirement: The payments you make when saving for your retirement are deductible from your personal income tax. Thus it follows that the dollars you spend for your retirement plan grow tax free in your business until time comes for you to retire.
7. Family Connections: Hiring your children as legal employees in your business can allow you to transfer funds in their name. And since children fall in a lower tax bracket they may not have any tax liability. However, only 8 year olds and above can be hired. Also, the work allocated to them should be such that they can perform it without physical or mental strain. Similarly you can hire your parents as employees thus saving the dollars you spend on taking care of them.
8. Social Security: As a self-employed worker, you have to pay double the social security contribution. Fortunately, half of this contribution is tax deductible in the 1040 form.