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Take Advantage of Specific Available Federal Deductions

Written By: Victoria Roddel iSafety Author

Individuals who file the federal tax form 1040 Schedule C or C-EZ “Profit or Loss from Business” should be aware of federal tax deductions that are available for the tax year 2013 filed in April 2014. To qualify for home office deductions, the home must be the regular place of business, for rental use or used as a daycare facility. As a general rule, only the percentage of the home exclusively for business use is deductible.

Deductible expenses for a home-based business may include the percentage of the home mortgage interest, insurance, utilities, repairs, and depreciation for the portion of the home devoted exclusively to business use. Expenses for a freestanding structure such as a barn, garage or studio can be deducted if it is used exclusively and regularly for the business. However, if part of the home is used regularly as a qualified daycare facility or if the home is the only fixed location of the business and is used on a regular basis for storage of inventory or product samples used for selling products, the business doesn’t have to meet the exclusive-use test to qualify for home business deductions.

Good record keeping is essential. Maintain separate accounts and records for business and personal expenses and income. Keep all receipts.

Beginning with tax year 2013, a taxpayer with a home business has a new filing option. Home business deductions can now be reported on federal tax Form 1040 Schedule A combining personal and business deductions instead of on Form 8829 listing actual business expenses. With this option, the taxpayer multiplies a prescribed rate by the allowable square footage of the home used exclusively for business to determine the allowable deductions for the home-based business instead of calculating actual expenses from receipts, as has been mandatory in prior years. However, this option is capped at $1500 based on $5 per square foot on up to 300 square feet.

For 2013, the standard mileage rate for the cost of operating a business vehicle for each mile of business use is 56.5 cents per mile. The standard mileage rate, if chosen, has to be used for the entire lease for leased vehicles. The standard mileage rate must be used the first year the owned vehicle is available for use in the business. The standard mileage rate can’t be used when the business operates five or more vehicles simultaneously; has already claimed any deductions, special depreciation allowances, actual leased-vehicle expenses, or any qualified reimbursements relating to transportation.

If a business owner chooses to use the actual expenses method, the mileage or the travel cost to visit a customer or client or to attend a local business meeting away from home is deductible. If he travels overnight, the expenses are deductible as travel expenses and not as a mileage deduction. Tolls and parking fees incurred because of a customer or client are deductible. The cost of meals is usually fifty percent deductible if the business owner is away from home overnight or if the meal falls under business-related entertainment.