Top 5 Home Business Tax Deductions

No One Likes Filing Their Taxes. But, If You Have a Home-Based Business, Considering the Following Tax Deductions Can Make the Process Less Stressful.

home business tax deductions

You know what they say about death and taxes…

Like it or not, there is no avoiding either. Filing your taxes as a home-based business owner can be arduous. Multiple forms, complicated “tax speak” and conflicting information can make the process pretty complicated and stressful.

The good news is that some of the complications can be worth it in the form of tax deductions. Many home-business tax deductions are available for small business owners. Be sure to consult with a tax professional when filing, but don’t forget to look at these five tax deductions for home-based businesses.

1. Home office

The home office tax deduction is notorious for its stringent rules, but it can lead to big rewards for eligible small business owners. To qualify for the deduction, you must have a workspace in your home that is used exclusively for your business, which means that only around one-third of small business owners are eligible (according to IRS data). If you occasionally use your “home office” space for personal projects or if it doubles as a guest bedroom or for anything that isn’t work related, you can’t claim the deduction. To get the deduction, you’ll need to know the square footage of your office or work area. In many cases, you can claim a dollar amount per square foot, though you also may be able to use the area as a percentage of your total home. Though it hasn’t been proven, some people believe you are more likely to be audited by the IRS if you claim a home office deduction because so many people abuse the offer. This might not be true, but be prepared to prove your case if the IRS comes knocking.

2. Office supplies

Even if you don’t qualify for the home office deduction, you can likely take advantage of deducting your office supply costs. Be prepared to prove the purchase of supplies like paper, ink, toner, pens, and more with receipts. You can also deduct electronics, such as a computer or tablet. However, you’ll only be able to deduct the entire amount if you can prove the device is used exclusively for work. If you use the device for work and personal use, you can only deduct the percentage of how much the device is used for your business, such as deducting 70% of the cost if you use an iPad for work 70% of the time.

3. Health insurance

If you are not eligible for health insurance through an employer (such as through your spouse’s company), you may be able to deduct the cost of health insurance for yourself and your family. Health insurance premiums are entirely deductible as long as they don’t exceed your business’s profits. Medical, dental, and long-term health insurance premiums are eligible.

4. Client meetings and gifts

Small business owners know that many client interactions and important meetings happen over lunch. Luckily, you can deduct 50% of the cost of meals with clients, as long as they aren’t excessive or extravagant. To prove the expense, you’ll need to provide itemized receipts from the restaurants. It can also be helpful to mark each receipt with the date, client and the business purpose of the lunch. You can also deduct the cost of gifts you send to clients, but you are limited to $25 in deductions per person. There isn’t a limit of how many people’s gift you can deduct, however.

5. Family employment

Many small business owners hire family members like a spouse or grown kids to help with the company. If this is the case and you keep reliable records, you can deduct their salaries from your taxes. To be eligible, you must have records of the pay rate for your family employees and an account of their hours and what they did. If you employ your children who are under age 17, they don’t have to pay Social Security taxes.

The key to successful home-based business tax deductions is to keep good records of all your expenses and purchases. With careful accounting and a working knowledge of the tax code, you can take advantage of numerous deductions to make doing your taxes just a little more pleasant this year.

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