Q: Are there tax benefits from operating a homebased business?
A: Without question, operating your own business from home has several tax advantages. You can deduct a percentage of many home-related expenses based on how much of your home you can qualify for a home-office deduction.
For example, if you have a 2,000-square-foot home and a 200-square-foot office, you could deduct 10 percent of many expenses. Here are the most typical deductions:
- A percentage of your rent if you rent or lease
- A percentage of your mortgage interest if you're buying your home
- A percentage of real estate taxes and homeowner association fees
- Household supplies and cleaning services for the business portion of your home
- Repair and maintenance of your home office
- Utilities (electricity, gas, water) attributable to the business use of your home
- Trash collection
- Furniture in your household that you convert for use in the home office
- Phone services, minus the base local service for the first line into your home (Lines devoted to the Internet and faxing may be entirely deductible.)
- Business use of your automobile from the time you leave your door (If you had an office away from home, you would have a tough time deducting the cost of travel between your home and office.)
Taking all the deductions you're eligible for can offset the higher cost of health insurance you have to pay as a self-employed person. For more information, see IRS Publication 587, Business Use of Your Home.
Paul and Sarah Edwards are the co-authors of 15 books, including The Entrepreneurial Parent. Send them your start-up business questions at www.workingfromhome.com or in care of Entrepreneur.