Many home based business owners do not realize that a certain amount of the money they make actually pays for the expenses of running their business and that these expenses are tax deductions, thus reducing the business profit and tax liability. Here are some things commonly missed as home based business tax deductions.
Cost of Goods Sold
The cost of goods sold is the price paid for the products sold, the materials used to produce or improve the goods, the cost of obtaining the products, and the costs of storage of the product.
Traditional and non-traditional supplies that are necessary for running a business, including paper, ink, purchased forms, filing folders, etc. are all tax deductable.
Business Use of Home
The portion of a home used exclusively for business can be deducted. To qualify as the location of business, the home office must be used exclusively for business, unless it is an in-home day care.
To deduct a part of the cost of the home for business use divide the square feet of the office by the total square feet of the home. The percentage of the house that is used for business is the amount of deductable expenses. This includes utilities, rent, mortgage interest, insurance, repairs, etc.
A vehicle that is exclusively used for business may be depreciated as a capital expense, and other costs, such as fuel and maintenance, can be deducted yearly.
If the vehicle is used for both personal and business use, then a log of business mileage must be maintained. The total amount of miles driven for business use is multiplied by a set amount on the tax form to determine the allowed deduction.
The main phone line of a home cannot be deducted, however, the cost of individual calls made for business can be. A second line, internet phone, or cell phone used for business is deductible.
Equipment and Furniture
Based upon the expected life and usage of the item, it can usually be deducted as an expense or depreciated over the next several years.
The interest on a credit card used exclusively for business is deductible; if use for both personal and business only the interest on business expenses can be deducted. Likewise with a loan of any other kind, the interest is deductable in the same manner.