Wednesday, January 25, 2012

Some Work-From-Home Deductions You Might Have Missed

You must pay your Federal and State Income Taxes every year, or every quarter. Avoiding paying your taxes, could get you in big trouble with the IRS. It's against the law to evade taxes whether you work from home or not. You need a general excise tax license if you work from home as well, you can pay monthly, quarterly, annually and you can do so online. Your tax rate will depend on what you earned, where you live and is based as well on whatever the federal tax rate is. Ranging from 10-35%. You will need a Schedule C for if you are self-employed which has all the places to deduct work from home expenses.

Some of the best deductions to claim if you work from home include:
1) Medical Insurance - One hundred percent of health insurance costs can be deducted for self and family. This will decrease income tax, but not the SE tax (Schedule SE is social security and medicare). The only way to reduce SE is to hire your spouse and get medical coverage under him or her.

2) Home Office - If you use a regular part of your home as office space and/or to meet with clients, this space can be a deduction on your taxes. The expenses of the home office that can be deducted include: a portion of your real estate taxes, rent, mortgage interest, utilities, insurance, home repairs and painting, and depreciation. These deductions are based on a percentage of the home being used for the business, and it does reduce SE income.

3) Open a Retirement Plan - Two of the best plans to open, where you can contribute up to 20 percent of your income is the Simplified Employee Pension Plan (SEP) and Keogh Plan.

4) Hire Your Children - You can hire your children to do routine work, such as answering the phone, running copies, doing business errands, setting up appointments, and cleaning of office space. Their wages can be deducted from the Schedule C Form, as it is most likely to be non-taxable income to your child. This will also decrease your tax bill in the movement of taxable income from you, as the parent, to your child's non-taxable income.

5) Mileage - Any time you have to use your personal vehicle for business-related travel, such as meeting a client or running errands, it is a deductible expense. The current rates for the first half of 2011 were 51 cents per mile, and the second half of the year's rate is 55.5 cents per mile. Any parking fees or toll fees are also tax deductible.

6) Office Supplies/Equipment - Any items purchased to run your home business is tax deductible. Pens, paper, envelopes, etc. are deductible, including equipment such as computers, copiers, and fax machines. Also, your telephone or cell phone is also a deduction. A percentage is deductible if it is also used for personal business. It is 100 percent deductible if the phone is designated for business calls only.

7) Traveling - All business travel is 100 percent deductible. You can even add a few days of vacation on to a business trip, and it will still be 100 percent deductible as long as the business days are longer than the vacation days. All travel costs, including lodging, hotel tips, and 50 percent of meals, are deductible.

There are many benefits to being your own boss and running your business from home. With this luxury of working from home, comes the responsibility to pay your taxes and know what items can be a lawful deduction to help you prosper in your business.
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