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Small Business Help Line – How to Declare Home-Based Business Expenses

How to Declare Home-Based Business Expenses

Question: How can I deduct expenses for my home-based business on my taxes?

Answer: A home office must be designated solely for business use. No personal activities may occur in the home office part of a room , so the area must be clearly delineated.

Also, a home office must be regularly used at least 10 hours each week. To audit-proof your home office deduction, include documents such as photographs with a photo processing date, and blueprints.

A home office is a principal place of business if used for administration or managing your trade, and you don’t perform “substantial” administration or management in another office. If you do some of these activities elsewhere, it won’t count against you if these services are not substantial. Keep a good log.

Many expenses for your home office can be fully deducted. These include depreciation of assets such as furniture and equipment, repairs to the office and the equipment, and supplies.

Other expenses can be partially deducted. These include mortgage interest or rent, real estate taxes, home repairs, utilities, insurance, pest control, and depreciation of the home

Good documentation will save a business from higher tax liability or audit trouble, and this is especially true of home-based businesses. Keep a daily appointment book , especially if you have a personal service business.

Your appointment book should include all appointments, where and when you travel, where you go by car, and where and when you entertain business contacts. Keep all receipts to track expenses, and have a separate checking account and credit card for business purposes. A user-friendly bookkeeping system, such as QuickBooks or Quicken, will also help.

For more information or to find a tax professional in your area, call the California Society of Accounting and Tax Professionals at (800) 894-8995.

Answered by Elaine Lyttleton, president of Carlsbad-based Number Runners, Inc. and spokeswoman for the local chapter of the California Society of Accounting and Tax Professionals.

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