Sandy Botkin ,  Tax Lawyer, CPA and former IRS attorney

At least a percentage of every business-related expense, as well as household expenses, can be deducted from your total income earned  from full-time employment,and your home-based business, even if you are working your home-based business only part-time, "on the side".   You don’t even have to turn a profit for the first several years, as long as you establish a “profit motive.”  That can be established if you earn any net income in any three out of five years.

The more tax deductions your business can legitimately take, the lower its taxable profit will be.  For example, if you earn $100,000 per year
from your job and home-based business combined, and claim 2 exemptions, but have $30,000 in allowable deductions because of  your home-based business, you would only pay taxes on your net income of $70,000.  Based on the "2000 Quickie Tax Calculator," you could save you $7,900 in federal taxes!  That's $7,900 legitimately in your pocket, instead of Uncle Sam's!
 
 

We encourage you to get help from a tax professional when preparing your tax return.  But take a look at some of the home-business-related expenditures that could help you save thousands of dollars in taxes this year:

Car Expenses - You can either keep track of and deduct all your actual business-related expenses, or simply deduct 32.5 cents (2000) for each business mile driven. If your auto is used for both business and pleasure, only the business portion produces a tax deduction. You must keep track of mileage and just how the vehicle is used,

Education/Training Expenses – Costs of training meetings, training program and manuals, books, online training subscriptions, etc.

Legal and Professional Fees - Fees you pay lawyers, tax professionals or consultants generally can be deducted in the year incurred.

Business Entertaining -  You may deduct 50%  of the cost for entertaining existing or prospective customers, if it is either "directly related" to the business, and business is discussed, or "associated with" the business, and the entertainment takes place immediately before or after a business discussion. (Keep notes on receipts or bills of the people involved and the business purpose .)

Travel - When you travel for business, you can deduct many expenses, including the cost of plane fare, costs of operating your car, taxis,
lodging, meals, shipping business materials, clothes cleaning, telephone calls, faxes and tips.  It’s OK to combine business and pleasure as
long  as business is the primary purpose of the trip. But if you take your family along, you can deduct only your expenses, just as if you had traveled alone.

Interest – If you use credit to finance business purchases, or if you take out a loan for business purposes, the interest and carrying charges
are fully tax-deductible. But be sure to keep good records showing that the money was really put into your business.

Computers and Software - You can now write off a whole computer system in the year it was purchased if the total cost is less than $20,000, and if it is used exclusively for business purposes.  (IRC Sec. 179)   In most instances, software bought for business use must be depreciated
over a 36-month period, unless you can demonstrate that it has a useful life of less than one year (i.e. if information becomes obsolete).

Charitable Contributions – Charitable contributions made by your LLC, partnership or S corporation can be deducted from your individual tax return.  If you own a regular (C) corporation, the corporation can deduct the charitable contributions.  Donations of office equipment or
furniture cannot be deducted if it has been fully depreciated on your tax returns.

Advertising – All expenses involved in advertising or promoting your business are deductible as a current expense, i.e. business cards,
classified ads, yellow pages, brochures and flyers, etc.

Household Expenses - Whether you own or rent your home, a percentage of your household expenses may be tax deductible.  To qualify for these deductions, a percentage of your home must be used “exclusively and on a regular basis” for your business.  (It doesn’t have to be an entire room.)   Hints:  To help substantiate these deductions, have your address on your business cards and stationery, have a photo of you in your office, holding a newspaper to validate the date, and keep a log of what you’re doing in your office.

• Business related long distance services and bills, (not including cost of basic service for your home phone, unless you have a second line) and additional phone lines
•  If you own your home, you can depreciate a percentage of all acquisition costs of your house and home improvements over a period of 39 years.  You can depreciate 100% of expenditures and improvement costs to your office space.
•  A percentage of all household expenses, including insurance, utilities, property maintenance, snow removal, grass cutting, etc.
• Office furniture and equipment – Have you bought any desks, chairs, computers, files, lamps…Up to $20,000 in business furniture and equipment can be deducted in one year.
• Homeowner's insurance, utilities and related expenses based on the percentage of their use in the home office.
• Household maintenance - Repairs to your home office are fully deductible.  Repairs to the whole house would be deducted on a percentage basis.
• Snow removal and grass cutting.

Don’t Miss These Miscellaneous Deductible Items:

sales aids, i.e. audio, and videotapes related to business skills
bank service charges
business association dues
business gifts
business-related magazines and books
casual labor and tips
casualty and theft losses
coffee and beverage service
office supplies
online computer services related to business
parking and meters
photocopies
postage
stationery
seminars and trade show fees
taxi and bus fare
telephone calls away from the business

Note:  Even without receipts for every miscellaneous expense, you can deduct them if you keep a written record of every one of these items.

Disclaimer:  This article is for informational purposes only.  It is your responsibility to check all current tax laws regarding allowable deductions.  It is essential for you to keep receipts , a log of all your deductible expenses, and a record of your business activities so you can substantiate your deductions if questioned by the IRS.  We highly recommend use of an accountant, tax attorney, certified tax service, or an online service such as H & R Block.