Deductions for Home-Based Businesses refer to allowable expenses that individuals can claim on their tax returns when they operate a business from their home. These deductions help reduce taxable income, thereby lowering the overall tax liability.
Common types of deductions for home-based businesses include:
-
Home Office Deduction: This can be calculated using either the simplified method (a standard rate per square foot) or the actual expense method (allocating a percentage of home expenses like mortgage interest, utilities, and repairs based on the area used for business).
-
Utilities: A portion of expenses related to electricity, water, and internet that is attributable to the business use of the home.
-
Office Supplies and Equipment: Costs for items necessary for running the business, such as computers, printers, and office supplies.
-
Business Insurance: A portion of homeowners or renters insurance that covers the business activities conducted in the home.
-
Depreciation: If a portion of the home is used exclusively for business, the owner may also be able to deduct depreciation on that section.
These deductions must meet specific IRS criteria to be eligible, including exclusive use and regularity of business activities conducted in the home.
« Back to Glossary Index