5 Tips on Understanding Home-Office Deductions
- Take advantage of every legal opportunity to reduce your taxes. Recent changes in the law benefit business owners who use their homes as an administrative and management base but work at other locations--such as plumbers, general contractors and health-care professionals.
- Ask your tax professional to analyze your business regularly so you don't miss important deductions.
- Document deductible items. These usually include such costs as computers and other equipment, telephone charges, furnishings, and pro-rated portions of rent, utilities, home insurance and homeowner association fees.
- If you're a homeowner, discuss with your tax advisor whether or not to take a depreciation deduction for the office space. Sometimes it pays; sometimes it doesn't.
- For detailed information, visit www.toolkit.cch.com , the website of CCH Inc., a business information services company based in Illinois. Or, go to the Internal Revenue Service website, www.irs.ustreas.gov , and download IRS Publication 587, Business Use of Your Home.
- Consult a tax advisor, even if you're a startup. A professional can save you both money and valuable time and keep you from running afoul of the Internal Revenue Service.
- Pay estimated federal and state taxes four times a year. Your tax advisor can help you determine how much to set aside ahead of time for each payment.
- Keep good records of both income and expenses. Save all receipts.
- Ask your tax advisor about special deductions you can take as a small-business owner--such as allowances for health insurance, long-term care insurance, or self-employment tax.
- Schedule a "tax tune-up" at least once a year. Update your tax advisor on your situation and your goals and get his or her advice on planning your tax strategy for the coming year.
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