The month of January is when most home-based business owners begin to verify his/her monthly expense records (i.e. bank statements, credit card statements, customer receipt copies, receipts from store purchases, spreadsheets, etc.) to take advantage of appropriate deductions allowable for his/her business.

If you’ve operated a home-based business for a while, you’re already knowledgeable of the types of deductions you can legally claim, and this article only serves as a reminder of deductions you might have overlooked while filing your tax return last year.

On the other hand, if you are new to home-based business ownership. Then, this article might be useful in helping you take advantage of deductions you can claim this tax year. As well as, using links included in this article to identify other deductions you might be permitted to claim.

Exclusive Use Deduction

In order to take advantages of IRS tax deductions for a business operated from your home, the area used must be regularly and exclusively used to conduct business. For instance, if you use your entire basement solely to provide daycare service to clients on a daily bases, and not use it as a family den once the children are gone for the day. Your entire basement is tax deductible based on a formula used to compute the total area of your home which determines the percentage for your deduction.

The same exclusive use deductions are allowable when you use a room in your home, as a home office to run your business, or a room in your home to store business merchandise, performer costumes, props, etc. Read more about deductions.

Allowable Deductions for Business Use of Home

Based on percentage of exclusive home-business usage, a business owner can take advantage of indirect expenses such as mortgage interest, real estate taxes, insurance, utilities, home repairs, maintenance and depreciation which are listed under Qualifying for a Deduction.

Business Only Expenses

Business owners usually incur exclusive expenses from operating an office or other business ventures which may include but are not limited to the following:

• Advertising (i.e. business cards, brochures, flyers, ads, website creation and hosting).
• Communication (i.e. business telephone, cell phone, mobile devices and internet service for business). Legal and Professional (i.e. fees paid to talent agent, personal manager, accountant, legal advice, memberships).
• Profession supplies (i.e. pens, pencils, notebooks, pads, copy paper, paints, brushes, sketchbooks, darkroom supplies, music stands, sheet music, clay, glaze, copier machine toner, fax/print cartridges).

Remember, expenses you decide to claim as deductions must be related costs and common to your type of business. The same holds true for business insurance, office equipment, equipment repair/maintenance, licenses, travel, meals, entertainment and other expenditures.

An afterthought: When it comes to filing tax returns, middle-income earning tax-payers with no dependents, but work two jobs to meet financial needs are often the loser when it comes to tax refunds. He/she receives little to no tax refund, or is required to pay additional taxes when filing tax returns because an employer didn’t withhold enough taxes during the year.

This is when, owning a home-based business and working it as your second job rather than working for someone else might be more profitable, provided you work in a profession that affords you the opportunity to work as an independent contractor.