Keep more of your hard-earned money! Tax deductions are essential to any business, but even more so when your office is also your home. You can spend thousands on an accountant -- or you can turn to Home Business Tax Deductions and do it yourself! Home Business Tax Deductions will help you write off: -your home office -start-up and operating expenses -vehicles and travel -entertainment and meals -health insurance and medical bills -inventory -equipment -and much more The 2nd edition is completely updated to provide the latest information and tax numbers for 2006. Home Business Tax Deductions also covers how to avoid being classified as a hobby business, steer clear of home-business tax scams, stay out of trouble with the IRS and take special deductions if your business loses money.

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Once you start your own business, you can begin taking advantage of the many tax deductions available only to business owners. The tax code is full of deductions for businesses -- and you are entitled to take them whether you work from home or from a fancy outside office. Before you can start using these deductions to hang on to more of your hard-earned money, however, you need a basic understanding of how businesses pay taxes and how tax deductions work. This chapter gives you all the information you need to get started. It covers: how tax deductions work (Section A) how businesses are taxed (Section B) what expenses businesses can deduct (Section C), and how to calculate the value of a tax deduction (Section D). A. How Tax Deductions Work A tax deduction (also called a write-off) is an amount of money you are entitled to subtract from your gross income (all the money you make) to determine your taxable income (the amount on which you must pay tax). The more deductions you have, the lower your taxable income will be and the less tax you will have to pay. 1. Types of Tax Deductions There are three basic types of tax deductions: personal deductions, investment deductions, and business deductions. This book covers only business deductions -- the large array of write-offs available to business owners, including those who work out of their homes. a. Personal Deductions For the most part, your personal, living, and family expenses are not tax deductible. For example, you can't deduct the food that you buy for yourself and your family. There are, however, special categories of personal expenses that may be deducted, subject to strict limitations. These include items such as home mortgage interest, state and local taxes, charitable contributions, medical expenses above a threshold amount, interest on education loans, and alimony. This book does not cover these personal deductions. b. Investment Deductions Many people try to make money by investing money. For example, they might invest in real estate or play the stock market. These people incur all kinds of expenses, such as fees paid to money managers or financial planners, legal and accounting fees, and interest on money borrowed to buy investment property. These and other investment expenses (also called expenses for the production of income) are tax deductible, subject to some important limitations. (See Chapter 2, Section C, for more on investment deductions.) c. Business Deductions Home business owners usually have to spend money on their businesses -- for example, for equipment, supplies, or business travel. Most business expenses are deductible sooner or later. It makes no difference for tax deduction purposes whether you run your business from home or from an outside office or workplace -- either way, you are entitled to deduct your legitimate business expenses. This book is about the many deductions available to people who are in business and who happen to work from home. 2. You Pay Taxes Only on Your Business Profits The federal income tax law recognizes that you must spend money to make money. Virtually every home business, however small, incurs some expenses. Even someone with a low overhead business (such as a freelance writer) must buy paper, computer equipment, and office supplies. Some home businesses incur substantial expenses, even exceeding their income.

 

Keep more of your hard-earned money!

Introduction: Using Tax Deductions to Keep What You Earn A. Why You Need to Know About Tax Deductions B. Why You Need This Book C. The Ever-Changing Tax Laws D. Icons Used in This Book 1. Home Business Tax Deduction Basics A. How Tax Deductions Work B. How Businesses Are Taxed C. What Businesses Can Deduct D. Adding It All Up: The Value of Tax Deductions 2. Are You Really In Business? A. Proving That You Are in Business B. Tax Consequences of Engaging in a Hobby C. Investing and Other Income-Producing Activities 3. Avoiding the Start-Up Tax Trap A. What Are Start-Up Expenses? B. When Does a Business Begin? C. How to Deduct Start-Up Expenses D. Expenses for Businesses That Never Begin E. Avoiding the Start-Up Tax Rules Bite 4. Home Business Operating Expenses A. Requirements for Deducting Operating Expenses B. Operating Expenses That Are Not Deductible C. How to Report Operating Expense Deductions 5. Deducting Long-Term Assets A. Long-Term Assets B. Section 179 Deductions C. Depreciation D. Tax Reporting and Record Keeping for Section 179 and Depreciation 6. The Home Office Deduction A. Qualifying for the Home Office Deduction B. Corporation Employees C. Calculating the Home Office Deduction D. IRS Reporting Requirements E. Audit-Proofing Your Home Office Deduction 7. Meal and Entertainment Expenses A. What Is Business Entertainment? B. Who You Can Entertain C. Deducting Entertainment Expenses D. Calculating Your Deduction E. Reporting Entertainment Expenses on Your Tax Return 8. Car and Local Travel Expenses A. Deductible Local Transportation Expenses B. The Standard Mileage Rate C. The Actual Expense Method D. How to Maximize Your Car Expense Deduction E. Other Local Transportation Expenses F. Reporting Transportation Expenses on Your Tax Return 9. Business Travel A. What Is Business Travel? B. Deductible Travel Expenses C. How Much You Can Deduct D. Maximizing Your Business Travel Deductions 10. Inventory A. What Is Inventory? B. Maintaining an Inventory C. Deducting Inventory Costs D. IRS Reporting 11. Hiring Workers A. Employees Versus Independent Contractors B. Tax Deductions for Employee Pay and Benefits C. Reimbursing Employees for Business-Related Expenditures D. Employing Your Family or Yourself E. Tax Deductions When You Hire Independent Contractors 12. Medical Expenses A. The Personal Deduction for Medical Expenses B. Deducting Health Insurance Premiums C. Medical Reimbursement Plans D. Health Savings Accounts 13. Retirement Deductions A. Why You Need a Retirement Plan (or Plans) B. Individual Retirement Accounts (IRAs) C. Employer IRAs D. Keogh Plans E. Solo 401(k) Plans 14. Additional Home Business Deductions A. Advertising B. Business Bad Debts C. Casualty Losses D. Charitable Contributions E. Dues and Subscriptions F. Education Expenses G. Gifts H. Insurance for Your Business I. Interest on Business Loans J. Legal and Professional Services K. Taxes and Licenses L. Domestic Production Activities 15. Record Keeping and Accounting A. Basic Record Keeping for Tax Deductions B. Records Required for Specific Expenses C. How Long to Keep Records D. What If You Don't Have Proper Tax Records? E. Accounting Methods F. Tax Years 16. Claiming Tax Deductions for Prior Years A. Reasons for Amending Your Tax Return B. Time Limits for Filing Amended Returns C. How to Amend Your Return D. How the IRS Processes Refund Claims 17. Staying Out of Trouble With the IRS 18. Help Beyond This Book Index

"Translates complicated tax-law jargon into words you can understand and apply to your home-based business without hiring a CPA.... Whether you're going to start or have already started your business, you need this book."

 

Stephen Fishman, Attorney Stephen Fishman is the author of many Nolo books, most recently Tax Deductions for Professionals. Other titles include Deduct It! Lower Your Small Business Taxes, Every Landlord's Guide to Tax Deductions and Home Business Tax Deductions: Keep What You Earn—plus many other legal and business books. All are published by Nolo. He received his law degree from the University of Southern California in 1979. After stints in government and private practice, he became a full-time legal writer in 1983. Products by Stephen Fishman, Attorney: Choose the Best Legal Entity for Your One-Person Business Consultant & Independent Contractor Agreements The Copyright Handbook: How to Protect & Use Written Works Deduct It! Lower Your Small Business Taxes Every Landlord's Tax Deduction Guide Home Business Tax Deductions: Keep What You Earn How to Safely & Legally Hire Independent Contractors Nondisclosure Agreements: Protect Your Trade Secrets & More The Public Domain: How to Find Copyright-Free Writings, Music, Art & More Tax Deductions For Professionals Web & Software Development: A Legal Guide What Every Inventor Needs to Know About Business & Taxes Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants Working With Independent Contractors

 

Home Business Tax Deductions by Stephen Fishman
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