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In many ways, running your own business from home is a sweet deal: No commute, no boss looking over your shoulder, no dress code. You can eat what’s in the house and keep your dog company.But it’s also expensive. You’ve got to foot the bill for everything from technology to transportation to health insurance. So it’s critical that home-based entrepreneurs take full advantage of the tax deductions that are available to them.
Here’s what to write off, and how to do it:
Home office space. If an office or other portion of your home is designated for work, the IRS allows you to deduct a portion of your mortgage payments or rent. The use of the space for work has to be “regular and exclusive”—in other words, a laptop on the kitchen table doesn’t qualify. The deduction is proportional to the size of your workspace. Calculate the percentage of your home’s square footage that is used exclusively for work. And don’t forget that you can deduct utilities, homeowners’ insurance and real estate taxes as well.
Computer equipment, software and supplies. Deduct the full value of any computers, software and Internet service that are used only for business purposes. Other write-offs include software programs, including accounting software, and postage expenses.
Health insurance costs. Sole proprietors can write off the cost of their health insurance premiums, but remember, your family’s insurance costs are not deductible unless they work for you.
Research materials. If you subscribe to websites or print publications that focus on your industry, write them off. If you’re a writer and purchase copies of the publications you want to write for, deduct those too. Same goes for reference books.
Business phone calls. Write them off. The simplest way to keep track of your business call expenses is to have a dedicated phone line or a separate cell phone altogether.
Auto mileage and travel expenses. Whether you’re travelling to meet with clients, conduct research, or for some other legitimate business purpose, all of the expenses can be deducted. Keep track of mileage, and keep receipts for cabs and air travel. They can all be written off if properly documented.
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