Business Tax Deductions

The IRS allows taxpayers who run small businesses from their homes to deduct their office space as business expenses from their taxes each year. The only requirement is that the office space be dedicated to running the business, i.e., no other non-business activity can take place in the dedicated space.

This means you can’t use it as a den, or an extra bedroom or entertainment room, etc. Nor can you sleep in it after a spat with your spouse; the space is strictly for business.

Here’s how it works: 1) measure the office space, both length and width 2) calculate the square feet of the space (L x W = square feet) 3) divide that figure by the total square feet of your home’s actual covered living space (you can’t count the garage or patios or storage spaces, etc., places where you don’t actually live) 4) the figure you arrive at will be a decimal fraction (0.xx), which you will use to calculate a percentage of all your bills, including mortgage payment or rent, property taxes, electric, water, sewer, garbage, telephone–every bill that you pay related to living in your home.

For example, if your mortgage payment were $1,000, and your office space was a 10′ X 12′ converted spare bedroom, and your home had a total actual living space of 2,500 square feet, your percentage would be calculated as: (10 x 12) divided by 2500 = 0.048. Then, multiply your mortgage payment of $1,000 by 0.048, the result would be $48.00

Come tax filing time and filling out the long form, that $48.00 could be deducted from your taxes as a legitimate business expense. Same is true for all your other bills!

Every penny counts, whether you’re just starting out or doing a full-tilt business with hundreds of projects or clientele.

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