A home based business provides numerous opportunities to convert personal non-deductible expenses into deductible business expenses. For many home based businesspeople, taking the home office deduction is a major financial incentive to start businesses in their home, and it can have a significant and positive effect on the home ased business’s financial position.

To qualify to deduct expenses for business use of your home, you must use part of your home:

  • Exclusively and regularly as your principal place of business which means you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.  You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. 

   Example: You are an attorney and use a den in your home to write legal briefs. Your family also uses the den to watch television or play video games. The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den.

  • Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business,
  • In the case of a separate structure which is not attached to your home, in connection with your trade or business,
  • On a regular basis for certain storage of inventory or product samples (Your home is the only fixed location of your business of selling mechanics’ tools at retail. You regularly use half of your basement for storage of inventory and product samples. You sometimes use the area for personal purposes. The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business).
  • As a daycare facility.

   Here’s a list of some of those home based business tax breaks:

  • Business portion of:
    • Real estate taxes
    • Mortgage interest
    • Homeowners fees
    • Insurance
    • Painting
    • Repairs
    • Rent
    • Utilities
    • Housekeeping
    • Security system
    • Household supplies
    • Homeowners dues

   As you may imagine, a home based business owner can legally deduct all additional ordinary (normal, common and accepted under the circumstances by the business community) and necessary (appropriate and helpful) business expenses for the operation of the business. Literally from Apples (staff snacks) to flying over a gorge on a Zip Line during a vacation (because it’s personal development training!). Of course, each person’s circumstances are different.

Sage International, Inc. continues to help many home based businesses incorporate because bottom line, we know if you want to take advantage of all the tax benefits available to businesses which saves dollars and actually puts money into your pocket, eliminate self-employment taxes, reduce your personal liability exposure, build legitimacy and credibility for your business and its services, ensure continuity and effectively narrow the chance of an IRS audit, then operating as a sole proprietor puts you at a huge disadvantage.  And we’re all about flipping that coin to the side of  advantages!