Tax deductions can feel like a risky thing for home business owners. The possibility of being audited is enough to keep many from pursuing tax deductions for home business owners that would benefit them most.
In fact, the most recent data from the IRS showed that only around 32% of home business owners filed home office related deductions. The rest lost out on deductions and cost savings that could have benefited them.
What many business owners don’t realize is that home office deductions are not audit red flags when your file them properly.
Keep in mind that home-based businesses are extremely common small business models – 52% of all registered small businesses operate from home. If the IRS were to audit every individual and company that claimed a home office deduction, they’d be auditing more than half of all small business owners. It wouldn’t be practical.
Here are some game-changing tax deductions for home business owners. Don’t miss out on helpful deductions this year!
Tax Deductions for Home Business Owners
Home office deduction
The IRS has offered a simpler way to file the home office deduction since 2013. You can find details on this process by reading IRS Publication 587. There are 2 conditions you need to meet to take the home office deduction:
1) You must use your home as the primary place of business
2) You must use the space a) exclusively and b) regularly for business
While an audit is unlikely, always be truthful when filing deductions. In the event of an audit, you’ll need to supply proof of all your claims.
Startup cost deduction
Starting and opening your business was a costly venture and this deduction is meant to help you recoup some of those costs. It softens the financial blow of starting a company, and it’s one deduction you should never ignore. If you paid startup costs for your home business in the last year, you might be entitled to this deduction.
Some costs before you’re even running the business can be deducted as well, like expenses incurred while exploring new business models and opportunities, researching manufacturers, etc.
Most importantly, it’s a generous deduction, allowing your to write off up to $5,000 of startup and qualifying pre-startup costs. And if you’ve spent more than $5,000 starting up, the cost can be amortized ratably over a 15 year period. Startup costs over $50,000 have different limitations. You can find more information about this deduction in IRS Publication 535.
Health insurance premium deduction
You can deduct the cost of your personal health insurance premiums, as well as those covering your spouse, children, and any additional dependents.
This deduction is filed as personal expense, not a business expense, so be careful when including it in Form 1040. Health insurance premiums for you, your partner, and dependents can add up to a nice deduction.
These tax deductions for home business owners can be game-changers if you’ve been avoiding writing off qualifying expenses to stave off an audit. Take the deductions you’ve earned – it’s your right!