Home Business Tax Deductions

Running a business from home is comparatively cheaper than renting a separate edifice and running your business from there. A spare room, den, garage or even a part of your living room can serve as a good home office. However, running a business from home is definitely not free of expense. You do have to pay for utilities such as electricity, telephone, Internet, etc. However, Internal Revenue Service (IRS) has a provision for tax deductions for home run businesses under certain conditions. Let us understand in detail the conditions for IRS home business tax deductions and the various deductibles covered under IRS tax deductions.

Conditions for Home Business Tax Deductions

To avail any of the tax deductions, you have to produce valid proofs for the same. There are stringent rules if you wish to claim for home office tax deductions. The other deductibles are pretty easy to claim, but again you need to have proofs explaining their exclusive use for work at home business purpose only. These proofs can help you in an event of IRS audit. Given below are the conditions for claiming home office tax deduction.

Condition #1: Regular and Exclusive Use
While claiming tax deductions, you are required to prove that you use your property regularly and exclusively for business purpose only. If you only use your home office occasionally or incidentally, then you cannot claim for tax deductions. Also, if you are using it for any other purpose apart from or along with your business, then you do become eligible for tax deductions under IRS sections. The following examples will help you to gain better understanding of the above law.

Example: Mark runs a small business from his den. He works only as and when there is a demand for his business (like once in a month). He uses the same den for entertaining his friends on weekends. Under such conditions Mark does not qualify for tax deductions (violation of 'regular and exclusive' use condition).

Example: Graham also runs a small business from his den and works on every weekend. He also has a small workstation in his kitchen, where he works, cooks and also entertains his guests. In this case, Graham can claim tax deduction for his den but not for his kitchen (violation of exclusivity condition).

You need not satisfy the exclusivity condition if you use the space for storing inventory for your business or product samples. The condition also becomes void if you run a qualified day care facility at your home.

Condition #2: Principal Place for Business
Another condition for tax deductions for home office under IRS is that you should use your property as a principal location for your business. Meaning, you should not run your business from any place except the one your claiming for. Even if you do, your main business activities should be run from your home only. You will have to produce a proof that you meet your clients, patients or other business associates in this place or that you perform major management activities from this place. The example given below is an illustration of the above rule.

Example: Joanne was an interior designer who worked from home as well as had an office in the suburbs. However, she used to meet her clients at her home office only. She also stored her catalog and books in her home office. In this case, Joanne becomes eligible for home office tax deductions (provided she also satisfies condition #1)

Tax Deductibles for Home Business

There are a few deductibles you can claim under 'at home business tax deductions'. We have seen the rules for deductions under home office. The other self employment tax deductions are pretty easy to claim for. However, you need to produce valid proofs explaining exclusive business use of your home. Given below is a list of tax deductions for home business:

• Home office
• Office supplies
• Furniture
• Other equipment
• Software and subscriptions
• Mileage
• Travel, meals, entertainment and gifts
• Insurance premiums
• Retirement contribution
• Social Security
• Telephone charges

Maintaining a log record for your meetings with clients, is a good way of proving the business use of your space. Also, it is recommended that you only claim for legal home business tax deductions. Messing with IRS is not advisable.