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10 Tax Tips Every Home Based Worker Should Know

Written By: Barbara Taliaferro

The advent of the internet and the rapid advances being made in the technology that uses it has made this the era of home based businesses. Whether a home based entrepreneur is selling off manufactured goods, providing a service or just making extra money on the side selling off used goods, there are ways they can minimize their tax burden if they know how.

The IRS provides a page on their website devoted to helping small business owners, those that work from home and those that do not, understand their tax liabilities and responsibilities. This is a helpful place to start but it does not, understandably, offer tips and tricks to lessen the home based workers’ tax burden.

According to Investopedia.com, an online resource for entrepreneurs and investors, there are 10 things that every hone based worker should know to minimize their tax burden and maximize their profit.

 

  1. Keep accurate and detailed records – this will not only ensure accurate filing, but will prove invaluable in the case of an audit.
  2. Write off your home work space – this is calculated by determining the percentage of your home that is delegated as your work space. It allows you to write off a percentage of your home’s expenses as work expenses.
  3. Write off your equipment – any new equipment including computers and accessories, office furniture and office supplies that are needed to run the business, can be written off if you keep documentation of the purchases.
  4. Write off a portion of retirement saving and health insurance premiums – this is especially helpful for those home based businesses that have more than one employee.
  5. Write off phone time – if you do enough talking to justify it, consider a separate phone line or cell phone just for the business as these are both 100% deductible.
  6. Upgrade your connection – the cost of maintaining a connection to the internet may be written off, at least in part, including upgrading to a faster connection.
  7. Wining and dining – the cost of taking clients out for meals can be written off but take care not to spend more on the wining and dining than that client has spent on the business. This is a red flag for the IRS and may trigger an audit.
  8. Business trips – if a home based business requires traveling to drum up new clients, these trips can be written off, including mileage, boarding and food as long as proper documentation is kept.
  9. Nepotism pays – employing a family member can create tricky tax situation, but as long as the time put in and the benefit to their employ ca be proven, it can provide the entrepreneur with several tax benefits including writing off their insurance and retirement payments.
  10. Justify your deductions – this is perhaps the most important thing for a home based business to keep in mind come tax time. Writing off too many deductions or not being able to completely document and prove those that are genuine will may raise the interest of the IRS employee who processes you return. Write off everything that can be justified but nothing that can not.

There are many tricks and tips to getting the most out of a tax return but for the home based worker the most important thing is to keep accurate and detailed records all year. This will prevent headaches while filing and leave the tax payer ready for an audit if one should come.