This past year was the first year that I was fortunate enough to work from my home. Working from my home has been a wonderful change for both personal and professional reasons. The only thing that caused a slight issue was the tax filing changes that I had to endure. The office in my home was now considered a tax deduction. I had to get some help learning how to deduct the things that are allowed on my federal taxes. If you are new to working from home and have a home office, this blog can help you learn what you need to know before tax time rolls around.
If you own your own business and work out of your home, it is easy to overlook valuable tax deductions. Deductions reduce your taxable income so that you have a lower income tax obligation. Check out a few ways you can reduce your tax payment.
1. Take Advantage of Your Home Office
When tax time comes, it literally pays to have a dedicated space in your home for your home office. In order to qualify for the home office deduction, this space in your home must solely be used for business activities.
The deduction for your home office varies based on its size. As of 2016, you deduct $5 for every square foot of your home used for your business. For example, if your home office is 10 feet by 12 feet in size, this results in a total square footage of 120 feet. Multiple by 120 by $5 to get a deduction of $600.
However, the advantages of a home office don't stop there. You can also deduct a portion of your utility bills; the deduction varies based on the size of your office. Office supplies, furniture, and equipment for your office are also deductible.
2. Keep Track of Business Errands
Even if you run most of your business at home, you may need to leave your home on occasion. Client visits, trips to purchase supplies for your business, and research excursions are just a few reasons you might have to travel outside of your home for your business.
When you conduct these business errands, make sure you record the transportation expenses associated with the trip, including parking, tolls, and the cost of public transit. You can also deduct a flat amount per mile that you drive.
3. Remember to Save for Retirement
As a business owner, you are responsible for planning and preparing for your retirement. Make your savings efforts as affordable as possible with a deduction on your taxes.
Self-employed individuals have a few options when it comes to saving for retirement. The SIMPLE IRA, the solo 401(k) plan, and the SEP IRA are tax advantaged accounts that self proprietors can use to build a retirement nest egg. Contribution limits do apply to these accounts, but they vary based on the type of account and the tax year of the contribution.
Business owners know that every penny accounts, especially when they are working to build their company and turn a profit. Minimize your income tax expenses for utilizing all of the deductions that you qualify for. By doing so, you keep more money in your pocket so that you can build a successful business. For more information about your options, contact a company like Mary Anne Bohlinger CPA LLC.Share
8 November 2016