Monday, March 19, 2018

Reduce Your Income Taxes by Owning a Home Business

Tax system is complex. Each year a thousands of people struggle to save tax but end up paying more than they actually should. If you too are amongst such taxpayers, you must seek advice from a tax specialist or an accountant who would guide you on how to deposit your tax wisely. Besides, you may also reduce your income taxes by owning a home business. Here’s how?

Let’s suppose you have a full-time job but you are also a travel consultant who runs a small business at home. So now since you run a business from home, you must be using a car to travel back and forth possibly to drop off your business advertising pamphlets. It could also include your supermarket visits, grocery shopping, etc (coincidentally) while on the way to post a flyer or meet some client related to your business, which makes 90% of your automobile expense tax deductible. In view of the fact that you have an office in your house, you claim at least 30% tax deductions from mortgage interest, house maintenance, water bill, electricity bill, rent (if you don’t own a house), repairs made in your house for business, etc. The use of telephone, internet and any other facility that is required to conduct a business from home can also be claimed as business deductions.

Furthermore, if your business requires you to travel to places within or outside India, your airfares, meals while traveling, hotel accommodation, car rental, the purchase of any types of equipment like video, camcorder and cell phones are other essential tools for your travel business that will be entirely tax deductible. This way you can save a lot of money that you would otherwise use to pay taxes. However before taking the plunge and claiming tax deductions from your home-business make sure you meet IRS qualification that states that your home should be your principal place of business. However by any chance, you operate your business from a separate location other than your home; you cannot claim deductions for use of your home. Still, IRS determines a few factors to approve the deduction:-

1.
The relative importance of activity that is performed at each of your business location

2. How much time you spend at each of your business location

If you manage your business solely from home, you’ll have to abide by the following clauses:-

1. You use the business place at home solely for business activity, management and administrative purposes.

2. Apart from your home, you have no other fixed place to conduct the business management and administrative work. However, you may do some business related work outside your home. For instance, your car.

Other than this, to get the IRS approval, you are required to prepare an IRS audit that ensures that you are not violating any rule or regulation and your home office is used "regularly and exclusively" for business purposes. One important point to note is that home business deductions are limited. You can claim deductions for your home business expenses to reduce your business income for the year, but if you had a business loss, these deductions are not possible in any circumstance. Also, not all home businesses are treated the same and may reduce your yearly taxes. There are special rules applicable to daycare business operations and if you use your home for storage space, you must seek advice from an accountant or tax attorney to come up with a better tax-saving alternative.
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