May is "Small Business Month" and it's always great to do business with other businesses as well as customers. Many times small business owners can be unclear about many expects of the administrative and legal processes that need to be considered when starting their business as well as during the time or operating it. I enjoy learning and broadening my knowledge of various subjects. I have physical, electronic, and audio libraries to prove it.
Do you know...as far as the IRS is concerned, a home-based business is no different than any other business. Home business owners file business tax returns, report the earnings as business income, and deduct business expenses. The expenses that home-based businesses can deduct are exactly the same as the expenses every other business can deduct, with one important exception: the home itself.
If you use part of your home for business--your office, workshop, store, warehouse, or whatever you are using your home for--the cost of the space (the rent or, if you own your home, the depreciation) and some of the expenses directly related to the space, such as utilities and maintenance, can be deducted only if the space meets special IRS requirements. The two basic rules are (1) a principal place of business, and (2) regular and exclusive use.
So the message is: "Don't worry about the IRS. Deduct everything you are entitled to."
There is one other tax deduction, in addition to the home expense deduction, that is limited for home-based businesses. The cost of a land-line telephone into the home CANNOT, in some cases, be deducted. It's a little law that's slowly becoming obsolete as more and more businesses are switching to cell phones, smartphones, and internet connections, which do not come under this land-line law.
Other business use of the home: The Home Expenses deduction applies not just to businesses that are home based but also to any business where the owner of the business uses his or her home for business purposes. Many mobile businesses--businesses that travel to customers--quality for the home expenses deduction. Contractors, salespeople, entertainers, freelancers, consultants, and others who earn income outside the home may be eligible for the home expenses deduction. Even businesses that have separate business locations outside the home may be eligible for the deduction. All IRS rules for deducting home expenses are explained under the Home Expenses post next.