Home Business Information

Having a desk in your family room and calling it your office doesn't qualify as a legitimate home office. Learn what does qualify so you can get the most out of your expenses.

The number one rule to qualify as a home office is that it must be a separate room, used only as your office. Your kids can't come in and do their homework or any other activity. It's your office - plain and simple.

Now for tax purpose you'll need to know the total square footage of your house or apartment. (Yes, renters can deduct their office too as long as it is a separate room). Now measure the length and width of your office, multiply them to get the square footage of your office. Keep a record of this in your "Year End" file. This file is for all the papers you'll need to take to your accountant during tax time.

If you rent your house or apartment, you'll be able to deduct part of your rent and utilities. If you want to deduct phone costs, you'll need to have a separate business line put into your office. List the monthly phone costs as well as the installation cost under your "Phone" column on your expense spreadsheet.

The amount you can deduct for rent and utilities is the same percentage as the size of your office is to the size of your house or apartment. Let's say the apartment is 1,000 square feet and your office is 10 ft x 10 ft or 100 square feet. That means your office takes up 10% of your total living space.

At the end of the year, you'll be able to deduct 10% of your rent and utility expenses on your taxes.

Keep a copy of your utility bills each month. On each statement, figure what portion of the bill that belongs to the business. Note that amount on the bill and write it down on your spreadsheet under utilities. Let's say your electric bill was $85.00. Note that $8.50 of this bill is a business expense. Pay the bill in full with your personal checking account. And that's it for your monthly expenses.

If you own your own home and you have a room built for your office, you need to keep records of those expenses. Let's say you have a basement and you had walls added to create a separate office. Keep all the receipts (materials and labor) in a separate folder as part of your "Year End" records. These expenses are deducted over a period of time (usually 3-6 years). These are not recorded on your monthly spreadsheet.

So there you have the basics - the size of the office determines the amount of allowable expenses on your taxes, have a separate phone line and save all your receipts.

# posted by Medical Information : 2:45 AM