Did you know that if you are a US citizen that the IRS will allow you 4-years to make a profit on your home business? During this time you may file deductions for any expenses incurred even when there is no profit. However, after 4-years if you have still not made any profit, they will then look at your business as a hobby and will no longer give you any deductions.
That really sounds more than fair and as though our government wants us to accomplish something more than usual. There is a whole laundry list of possible deductions you may claim if you use your home for business, whether full or part-time. Be sure to check the IRS website thoroughly yearly before filing your taxes, because the regulations do change.
Ideally you will have a source of income during the 4-years where you are attempting to start a home business part-time. You may pay regular income taxes for that income as you normally would and that too helps with your bottom line. The rules are a little more strict for this situation, for example they require you not only to have official home office space but the room needs a door so it is not used for anything else.
If and when your home business did grow to be an official source of income, you don’t need the door. Some of the things that would be deductible from the inception would be a percentage of your rent or mortgage according to the square feet actually used for the home office. As well, a percent of most utilities would be deductible as a % of expenses spent on your business.
Be absolutely sure that you have every single shred of paper that would be construed as a receipt for any of your deductions. Very simple to maintain if you start out and remain organized. Print them out and put them in a folder or leave them in a designated folder online. You can also print out statements from your bank(s) and payment processors, carefully indicating exactly what they are for.
The key is to remain organized and scrupulously honest from day 1. Don’t’ be scrambling around trying to find things at the last minute and possibly have to file without the benefit of a deduction you can’t document.
Comments are closed.