What You Can Deduct On Your Taxes!
By Tariq Shafi
 
According to the U.S. Census Bureau, roughly 5.9 million people work at home throughout the country. With this becoming such a popular option, and April 15th fast approaching, it is a good idea to know what you can deduct on your taxes.
     “People often have a difficult time determining exactly what they can and cannot deduct on their taxes when it comes to working from home,” explains Tariq Shafi, a practicing certified public accountant with Shafi and Company (www.tariqshaficpa.com), who is also an adjunct professor of accounting, auditing, and taxation at Stratford University (www.stratford.edu). “But if you take the time to get it right, it can make a big difference in the amount you pay at tax time.”
    One of the reasons that so many people find taking home office deductions difficult is that they fear they may get in trouble or somehow do something incorrectly. There is also a lot of information people find scary in other publications and online that makes them feel they may do something that the IRS finds to be a red flag.
     While those who work from home can deduct a variety of things, here are some of the most popular deductions:

1.  Home Office.

        You may qualify for a home office deduction if you have a space that is used exclusively and regularly for work purposes. This means, if you have a dedicated home office, you can usually qualify for the deduction. But if you have a laptop set up at the dining room table, you can’t. Taking a home office deduction is one of the most confusing things for people. It is also the one that the government will probably pay the most attention to. If you are claiming a home office deduction, you better make sure you have a dedicated home office.

2.  Home Care Expenses.

    If you qualify for a home office deduction, then you can claim a portion of all home care expenses, as well. For example, if your home office amounts to 10 percent of the square footage of your total home space, you can deduct 10 percent of all your home care bills, including utilities, mortgage interest, real estate taxes, home security, maintenance and even lawn care. You can even deduct depreciation, because the home office is considered a structure that is used for business, just like a separate brick-and-mortar office would be.

3.  Supplies.

    Home offices need supplies in order to operate. Keep the receipts for items that you buy to keep your home office running, as they can be deducted, especially items like copy paper, pens, file folders, etc. While there are a lot of things that are needed to keep an office running, if you try to take more deductions here than you should, it could become a red flag issue. If the amount of supplies you are claiming seems do-able for your type of business, then you are fine, but if it seems far fetched, then it may be investigated.

4.  Internet Access.

    If you use your computer for work purposes in your home office, you can deduct your Internet access. This is especially helpful for people who conduct their business online or use the computer for online research or even work-related e-mail. This is a deduction that most people tend to forget about, yet one that can really add up. This is especially true if you have a high speed provider that charges a lot per month. And even if you only pay $20 per month for Internet access, it is absolutely an expense that most businesses cannot live without today. Be sure to include it!

5.  Subscriptions and Memberships.

    If you do any kind of research for your work-at-home career, or just want to keep up on the field, your magazine subscriptions and memberships to professional organizations can be tax deductible. And if you do not already get any magazines and memberships in your field, you should start doing so. With it being a tax deduction, you can gain some extra career field knowledge. This is the time to take on those subscriptions and memberships and take advantage of learning more about your career field and getting them deducted on your taxes.
 
6. Other Expenses that can be Deducted

    Additionally, it is important to note that if you have expenses that affect only the business part of your home, such as painting and repairing the home office, you may deduct a 100 percent of the bills, since they are "direct" expenses. You don't have to do a pro-rata share. Also, The IRS puts a limitation on your home office expenses. Such expenses cannot exceed the business income from the home office.
     “The silver lining is that you may carry forward these excess expenses next year and deduct them from business income of the following year,” adds Shafi. “If you are not sure whether you qualify for these deductions, ask an accountant before claiming them. The deductions are available, but you need to be sure you are taking the right ones, and that you’re taking advantage of all of those for which you qualify.”
    You will also want to make sure that you meet the definition of a business, rather than a hobby. If you have a lot of expenses, but are not really making any money at your business, the government will see you more as a hobbyist. And a hobbyist doesn’t get all the tax deduction benefits that those with hobbies do. So in short, your business will need to be making a profit after a while, or they will not let you continuously take these business tax deductions.

     There are even more tax deductions that home businesses can take, each depending on whether or not you qualify for them. For example, some people who work at home also purchase their own health insurance for their family. That is an expense that can be deducted, providing you meet all the requirements for taking such a deduction.

Tax Assistance
 
    If you are not sure which tax deductions you qualify for, you will need to speak with an accounting specialist. Even if you don’t want to get your taxes done each year by an experienced CPA, going to one for at least one year can help get you on the right track. An accounting specialist can set you up to know what you can and cannot deduct each year and in which direction to take your tax preparation the following years.
     Because of the deduction laws and savings that an accounting specialist can often get businesses, it is often well worth the return on investment to have a professional do your taxes. Furthermore, the cost of having the accountant do your taxes is also tax deductible. Many people do not realize that they can deduct the accountant’s fee as an expense. HBM

Stratford University operates campuses in Tysons Corner, Woodbridge, and Glen Allen. It offers 30 undergraduate and graduate degrees in the areas of Culinary Arts and Hospitality, Nursing, Health Sciences, Business Administration, and Information Technology. The degree programs are offered both on campus, as well as online. For more information on Stratford University, please visit www.stratford.edu.
Source: U.S. Census Bureau. Labor Day 2010. V18-2 Add: 6/11 HP: 7/9/11