Tax Planning Tips

As a self-employed individual, the thought of paying taxes may be a tad scary. But have no fear – there are many tax benefits for the self-employed, which include the home office deduction.

Having knowledge in the area of home office deductions can come in quite useful for all those who are either self-employed or an employee of a company working out of his or her home office. According to Uncle Sam, if you use any portion of your home for business, you will be able to deduct the associated costs. These associated costs refer to the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs. Make note that the total amount you can deduct depends on the percentage of your home used for business. This means your deduction will be limited if your income from your business is less than all your business expenses.

This is as cool as it sounds. But, of course, the IRS has several requirements that those who work from home must meet. Some of the general requirements are:

• The home office must be used regularly and exclusively for business needs. For example, you cannot set up a computer in your bedroom, type up a few emails on it, and then consider that room to be your “home office” as well. The home office must be used strictly as the home office, and nothing else.

• The business portion of your home must be either your principal place of business OR where you meet or deal with clients, customers, and/or patients in the normal course of your business. Separate, detached structures such as a guest house or garage that is used for business may certainly also qualify as a home office. In recent years, the IRS broadened the types of business activities that can be considered in determining whether a home office is a taxpayer’s principal place of business. Nowadays, a home office is qualified for deductions if it is used exclusively and regularly for the administrative or management activities of your business. However, be on alert that your home office location must be the only place where you can fulfill such responsibilities.

Let 2008 be the year you start your own work from home business. Contact me directly, and I will provide you with additional information about what you need to get started.