Entrepreneur Resources: Small Business Blog

Tax season is upon us! Continue reading to get tips on how your home business can decrease your tax liability. This article was contributed by Barbara Weltman of JKLasser.com.

A home office can mean the end of stressful commutes and bad hair days. A home office also can deliver a bigger tax refund. Your home office deduction is in reach if you follow the rules and keep the proper records. While it used to be a big red flag; taking a home office is no longer like wearing the scarlet letter of a tax cheat. Relax and don’t be afraid to get the most tax savings from your home and business.

When you use part of your home for business, you may be able to deduct expenses for the “business use of your home.” If you meet the requirements of the tax law, you should be able to deduct a percentage of many of the costs of running your home, such as: utilities, rent, insurance, depreciation, mortgage interest, real estate taxes, and some casualty losses, repairs, and improvements (as they relate to the part of the house you use for business).

Requirement #1: Regular and Exclusive Use- You must regularly use part of your home exclusively for a trade or business.
– There are two exceptions to the exclusive use rule: You don’t have to meet the exclusive use test if you use part of your home to store inventory or product samples, or if you run a qualified day care facility at your home.

Requirement #2: Principal Place of Business-You must also be able to show that you use your home as your principal place of business.
– A home office is your principal place of business, meaning you do most of the work that earns your keep there. This is no problem for people like freelance writers and accountants.

– A home office qualifies as your principal place of business (meaning it’s deductible) if you use it for administrative and management activities — provided that you don’t use some other fixed location to do these chores. This rule saves the day for to independent salespeople, construction contractors, plumbers, veterinarians, computer consultants and the like, who make their dough out in the field but do their paperwork at home.

– A home office can also qualify if you use the office to meet with clients. Even if you do most of your work elsewhere, as long as you regularly use your home office for meetings.

Ordinary business expenses are deductible even if you don’t qualify for the home office deduction. If you don’t meet the rules above, you can still deduct ordinary and necessary business expenses that you incur at home — for instance, long-distance phone calls, a separate business telephone line, and the cost of office supplies and equipment.

How to Claim the Home Office Deduction
If you qualify for the home office deduction, you must figure the amount of your deduction on IRS Form 8829, Expenses for Business Use of Your Home. Then you enter the total amount of the deduction on Schedule C, Profit or Loss from Business. Attach both Form 8829 and Schedule C to your Form 1040 tax return.

Be ready to prove to the IRS that you are entitled to take the home office deduction.

• Photograph your home office and draw a diagram showing the location of the office in your home. Keep this information in your tax folder.
• Get a separate phone line for the business.
• Have clients or customers visit your home office — and keep a log of those visits.
• Keep track of the time you spend working at home.

For more on what can work for you, against you, and how to do better this year, go to our new subscriber-based web service at www.jklasser.com.

About Barbara Weltman
JKLasser.com Contributing Editor Barbara Weltman, Esq. is the New York-based spokesperson for the J.K. Lasser’s library of tax publications and JKLasser.com.

Barbara is an attorney, a nationally recognized expert on tax and small business, and a member of the J.K. Lasser Institute Team of Editors & Writers. She has written dozens of top-selling business books, including J.K. Lasser’s Small Business Taxes 2008: Your Complete Guide to a Better Bottom Line, J.K. Lasser’s 1001 Deductions and Tax Breaks 2008: Your Complete Guide to Everything Deductible.

Barbara is the publisher of Big Ideas for Small Business®, a free monthly online newsletter providing entrepreneurs with the information on issues and concerns that matter most to the small-business community, and Idea of the Day. She is also the tax and law expert for Inc.com and a contributing editor of New York Enterprise Report and PINK magazine.

Barbara serves as Staples.com’s Small Business Tax Expert. She is a member of the Small Business Advocate Brain Trust and serves on the advisory boards for Small Business & Entrepreneurship (SBE) Council, WE-Inc., Boardroom’s Bottom Line/Personal, Tax Hotline, and Bottom Line Retirement. She is an adjunct professor at Manhattanville College, where she teaches Principles of Entrepreneurship, and is a frequent lecturer at the Learning Annex.

A popular speaker on small business topics, she has participated at both local and national conferences, including the DOL/SBA’s Women Entrepreneurship in the 21st Century, SCORE’s Westchester Small Business Conference, and eBay Live!

Barbara is a sought-after media commentator and has appeared as a tax and small business expert on CNN, CNBC, The Today Show, Bloomberg TV, numerous radio stations nationwide, and podcasts for Smart Money, Forbes, and Inc.com.

She is a graduate of Brooklyn Law School and a member of the New York Bar.