Home –based businesses, by their very nature, often have less structure. The lack of structure can lead to confusion as to what items or expenses are tax deductible. For some people, their home based business is not even a real business at all but rather a hobby or past-time; The IRS has specific standards for what constitutes a real business. Simply, buying into a venture and printing business cards does not qualify you to take business deductions. The good news is, once you have established yourself as a business by the IRS standards, there are numerous deductions available to you.
Key point to remember: A business operates to create a profit.
Home office expenses are classified into three categories:
Direct Business Expenses relate only to the taxpayer’s business activity (for example, supplies, mileage, photography, web design, business cards, stationary, professional organization dues, products that you are required to purchase as part of an MLM, trade show fees and supplies etc.).
Permissible Expenses are expenditures that could be included as itemized deductions in the individuals tax return (for example, mortgage interest, real estate taxes and casualty losses).
Previously Non-deductible Expenses would not be deductible if not for the home office deductions (insurance, utilities and depreciation).
The treatment of home offices for income tax purposes is complicated and this document is in no way comprehensive. If you have a home office or are considering one, please contact us. We’ll be happy to help you take advantage of all the deductions you are legally entitled to.
