Tax Breaks For Homebased Small Businesses
The government allows for many tax breaks for home based small businesses to encourage entrepreneurship and economic growth. It's not just big multinationals and large organizations which can take advantage of tax code to deduct business interest or write-down other operating expenses during the course of operations. It's always best to familiarize yourself with the tax code and understand what is allowable but below are some ideas which can help get you started in claiming deductions and saving money when it comes to paying small business taxes.
Home Office Use
A number of small businesses operate out of their home either from a home-based office or garage when getting started which not only saves money on overhead but can actually lead significant tax savings. The key is that the area in question must be used on a regular basis for the sole purpose of conducting business. Supplies, Internet access and utilities may all be claimed as deductions if it is used specifically in the course of business. This area, such as a home office, cannot be dual use and must be used primarily for customers or clients or other business activities.
Transportation Expenses
Many business owners, whether small or large, often use vehicles when dealing with clients or shipping product. If you're the type of business which utilizes a vehicle in the course of business activities you may be able to deduct some expenses related to the vehicle use. Vehicle maintenance, parking fees, tolls, depreciation and repairs, lease payments, insurance and registration fees are all possible deductions which may be claimed as tax breaks for your home based small business.
Meals and Lodging
Some home based small business owners require extensive travel in order to conduct business with clients or when researching or changing manufacturers of a product they may sell. During the course of this type of business it is often required for the business owner to accumulate certain expenses related to this activity. Some of the tax breaks for small businesses include meals, hotel or motel costs, telephone calls and dry cleaning. As with any business related expense, save all receipts and thoroughly document tips or mileage associated with transportation or lodging. These documents may be required if you're audited by the IRS and at a minimum will be required by your accountant or tax lawyer.
Retirement Plan Contributions
Home based small businesses don't normally have access the same type of retirement accounts as large organizations such as 401(k)s or 403(b)s. Of course any individual can invest in an Individual Retirement Account provided by their bank or credit union but other options are available which should be considered for a small businesses planning for retirement. Some eligible plans include the Simplified Employee Pension (SEP) plan, Savings Incentive Match Plan for Employees (SIMPLE), and qualified plans such as the Keogh and self-employed 401(k). It may be possible to receive a 50% tax credit on the first $1000 of your start up costs when establishing one of these retirement plans for your home based small business.
Small Business Insurance
Any insurances related to the operation of your small business are eligible for various tax breaks as outlined by the IRS. These include but are not limited to medical and dental insurance, automobile insurance, malpractice insurance, disaster insurance and credit insurance. If for example you purchase automobile insurance make sure it is a different policy from your personal automobile as to maintain the separate entity status for both personal and corporate expenses. The Internal Revenue Service also provides many publications which will clearly outline what is and is not a tax break and what can be deducted.
Summary
If you're unsure about what tax breaks are available for home based small businesses it is important to consult the expertise of a Certified Public Accountant or tax lawyer. You should also consider thoroughly reading and understanding all publications provided by the Internal Revenue Service as it pertains small businesses. Some these documents include Publication 334 Tax Guide for Small Business, Publication 535 Business Expense and Publication 587 Business Use of Your Home. All these documents and more are available your local IRS office or online at IRS.gov or by calling 1-800-829-3676 six.
