Four Common Tax Myths All Home Business Owners Should be Aware of

Deducting home office receives a bad movie. There are so many rumors about the deduction of home office you may want to avoid the whole subject. But if you have a home office and do not deduct it, you might miss some valuable tax savings. Take a look at the truth behind the myths about the home office deduction. Myth No. 1 – The home office deduction is a red flag for an audit. Twenty years ago, it could be true, simply because it was unusual. Now, a home business seems to be almost as popular as property! Millions of individuals operating a kind of activity outside their homes. Telecommuting others, and to deduct their home office expenses to a deduction detail. The home office deduction is no longer an automatic flag for an audit. The key to avoiding a reasonable check. The IRS uses computer analysis of all tax returns. Any deduction that is excessive for your income and benchmarks for your industry may be in doubt. Bottom line: deduction of a portion of your hospitality as a cost to operate your home business is expected! Myth number two – I take a home office deduction, I can deduct all the expenses of my house. You deduct a portion of your cost of the house as a home office expense based on the size of your home office space. If you have a 2000 square foot home and 200 square feet of office, you can deduct 10% of your home. Unless you operate a day care center, your home office space must be used exclusively for business. Your kitchen will be ineligible for the office space at home just because you use the table to complete the documents. If you use the space for personal and business, it is not permissible. The best way to keep track of this is to designate one or more pieces for home office. If you do not have an entire room for use as office space, furniture used to separate the personal part of the commercial space. Of course, there is an exception to this rule. If your business is wholesale or retail and you do not have any fixed location, you can include any storage space you use for inventory or product samples in your home office. This space should not be used exclusively, but must be used regularly, and be suitable for storage. Bottom line: Calculate the area that you use exclusively for business and the size of your storage space for inventory to determine your home office deduction. Myth number 3 – I can only take the home office deduction if I work at home only. old rule! Congress expanded the home office deduction to allow business owners without a fixed location other companies to take a home office deduction regardless of the number of hours they spend at home. If you provide services to clients or customers to their site, you can still benefit from the deduction of home office. You simply use your home office for administrative tasks and management. Bottom line: You can deduct your home office as long as you do not pay for other office space to manage your business. Myth No. 4 – The home office deduction will make me lose my exclusion tax on the sale of my house. The rules have changed, too. If you use 10% of your home for business purposes, you do not recognize 10% of the gain on the sale could be ruled out if you qualify for the sale of your principal residence. What you should do, however, is to include any deduction for depreciation that you took in previous years as a taxable capital gain. You still have advantages, because your capital gains rate is most likely less than your regular tax rate. You are able to take the depreciation deduction original tax rate ordinary income, and bring in income when you sell your home, at capital gain rates lower. Your depreciation deduction can also reduce your self-employment taxes. Bottom line: You can still save all taxes by taking the depreciation deduction for home office each year. Operating your home business is a very smart financially for the new business owner or small. You can save thousands of dollars in rent per farm at home rather than renting commercial space. But the cost of housing your business is an expense, and should be treated this way. You would not hesitate to deduct rental expenses for your company. Give your home business expenses in the same way. The tax money you save can be used to grow your business, or to finance your family holiday! Talk to your tax preparer if you have further questions, and be prepared to take the home office deduction on your next tax return!