Those who are self-employed or are planning to start a business from their home should make full use of the provisions made under the different home business tax deduction heads. These deductions include:
1. Home Office: A home office is that part of the house, which you use solely for your business functions. You can benefit from the home office deduction if you use this office regularly and exclusively for business. Indirect expenses and depreciation too can be deducted.
2. Car: If you use a car to carry out your business then you can deduct the business cost of the car. You can also deduct the operating and maintaining expenses of the car. The deduction can be based on actual costs or the IRS mileage rate, whichever is more beneficial to you.
3. Personal assets: You can claim a deduction on personal assets, like computers, that you use in running your business. You, however, have to qualify the percentage of use.
4. Business Journeys: Costs incurred on air tickets, hotels, internal transportation, shipping and even tipping are tax deductible. When it comes to meals though, you can deduct only half the total amount. The travel expenses of an employer, client or partner are also deductible.
5. Gifts and Entertainment: Being in a business is almost synonymous with having to entertain your clients and customers. Fortunately, 50% of your business-entertainment expense, inclusive of meals and tickets, are tax deductible. Often you may have to lavish gifts on important clients, and in this case the entire cost of the gift is deductible.
6. Retirement: The payments you make when saving for your retirement are deductible from your personal income tax. Thus it follows that the dollars you spend for your retirement plan grow tax free in your business until you retire.
7. Family Connections: Hiring your children as legal employees in your business can allow you to transfer funds in their name. And since children fall in a lower tax bracket they may not have any tax liability. However, only eight-year-olds and above can be hired. Also, the work allocated to them should be such that they can perform it without physical or mental strain. Similarly you can hire your parents as employees thus saving the dollars you spend on taking care of them.
8. Social Security: As a self-employed worker, you have to pay double the social security contribution. Fortunately, half of this contribution is tax deductible in the 1040 form.
