Over the last few decades, the number of household businesses has continued to increase. According to the 2012 Global Entrepreneurship Monitor report, more than two thirds of businesses begin at home, and around 59% continue to operate out the home even after they are more established. While operating a business out of one’s home requires a high level of dedication and discipline, there are many potential perks that make it worth the extra effort. At-home entrepreneurs often enjoy flexible work hours, little commuting, and increased tax benefits and deductions unique to this type of operation.
Home Based Business Taxes
As a home-based business owner, there are many tax rules to consider. The best way to start is by keeping detailed business records of your income and expenses. Save all of your receipts, making sure to note the purpose of each specific expense. You may have a mobile app or computer program to track your expenses, but you should still file copies of receipts to prove when money goes towards business needs. You can improve your record-keeping processes even more by utilizing an online accounting system, which has many advantages, including the ability to execute administrative tasks on-the-go, such as tracking expenses, sending invoices, and viewing bank balances.
When filing your taxes, you should also strongly consider opening a separate bank account and credit card account specifically for your business. These will help you keep business costs separate from your personal charges. Just remember, if for some reason you can’t afford to pay the entire balance due, many business owners pay their personal cards first. Personal interest expenses cannot be deducted, but business interest is deductible.
Home Business Tax Season Tips
When it comes time to file your taxes and submit claims, consider taking the home-office deduction, in which you are able to deduct the expenses associated with business use of your home, including home office-space, utilities, office supplies, and more. There are several requirements to claim the deduction—visit the IRS website to see if your business qualifies. And don’t forget, if you use your own vehicle for work purposes, a portion of your transportation expenses can be deducted against your business income. Also make sure you avoid these common pitfalls of small business owners, such as inaccurate returns, missing a payment deadline, or making a deduction mistake—any of which could potentially result in fines.
For many home-based business owners, it may be wise to consult with a tax professional or Certified Public Accountant. This investment may save you time, help reduce the risk of government fines, and give your home-based business a strong foundation for future growth.
For more small-business tips for your at-home operation, visit the Paychex Small Business Accounting and Bookkeeping Checklist: Guide to Getting Your Business Started.