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By Dexter Lunde
We’re smack dab in the middle of 2014 which means that it’s the perfect time to go through all of your tax information to make sure that everything in check.
#1) Home Office Audits
If you’re worried about deducting your home office on your taxes (if you own a home-based business), don’t be. There a few steps that you have to take to ensure that your idea of a home office is in line with the IRS’s idea of what a home office should be. Take a quick gander at these requirements to see if your home office will count or if you will need to make a few adjustments in order to make the cut:
It’s is only used as your office. In order to qualify, the room that you use as a home office can only be used as your office – nothing else. It can’t be your craft room as well. It can’t be the family office. It can’t be the den or laundry room either. The purpose of that room should be for your work use only.
No one else uses your computer. Your work computer should also be off limits for everyone else. If you have any children or a husband, they will check to make sure that no one else uses that computer. So in addition to the family computer or laptops (or tablets), make sure that you have a computer whose sole purpose is for work.
So how do you do it? Measure out the room (or the section of the room that you use as your home office) and divide it by the square footage of your entire home. That is the percentage of the home-related business expenses that you can deduct. This can apply to your rent, mortgage, electricity bill, etc.
If they want proof (for example, during an audit), you would fare better if your office looked like a workspace instead of just a jumbled mess of belongings. Keep all of your records. Take pictures if you have to. Look into making a floorplan that clearly distinguishes the boundaries of your work space. Consider putting in a filing cabinet to file all of your important work documents (only).
#2) Other Deductibles
Are you keeping track of your business expenses? Make sure that you’re keeping those receipts for your work-related expenses: computer check-ups, office supplies, work tools and maintenance, travel, membership fees, education, etc. Take note that travel is a big expense that can is tax deductible. So make sure to keep those receipts.
I like to keep my receipts organized. I’ve jumped around from manila folders to accordion files. My favorite system so far is a combination of both. I have an accordion file which is organized by time frame (mine is in quarters). In each section, I have business sized envelopes that are labeled by the type of expense it is: “business meeting expenses”, “copies of the rent check”, office supplies”, etc.
#3) Writing Off Deductions Versus Depreciation
There are different ways to itemize your work expenses. If you have a small, home-based business, I suggest writing off the cost of new equipment in one year (instead of taking depreciation over multiple years). You can do this up to $500,000.
#4) Check Out Some Projections
Take a look at your financial statements and see if you can’t compare your current year to last year’s. What were the significant changes? What do you expect to do for the rest of the year? Take your numbers to your tax specialists to see what you should do to adjust your estimated tax payments.
#5) Don’t Fear the Red Flag
I talked about it briefly in the home office section but remember that if you’re entitled to a tax deduction, by all means take it! Even if they are known as red flags for an audit (home offices, for example). If you keep all of your ducks in a row, keep your documentation organized and ready, follow the rules and regulations, and if you keep your receipts, you shouldn’t have anything to worry about.
Remember that before you start doing anything, discuss your intentions with your local tax people in order to figure out what is the best course of action for you and your business. Each business deals with different sorts of exemptions, deductions, and specific business dealings.
Remember that this information is general and may or may not apply to you. If you have any questions about whether or not one of these tips will be able to work for you, check with your local tax office. Besides, since it’s off season, the lines won’t be as long.
Now it’s your turn. What do you choose to write off on your taxes? Do you deduct from your taxes or do you keep it to yourself to avoid the trouble? Have you ever been audited before? What suggestions do you have for new businessmen? Let us in on what you’re thinking. Write down your ideas and questions in the comment section below.