Home Based Business Tax Benefits

Did you know owning a home based business has considerable tax benefits? The idea that only the rich have access to tax benefits is a myth!
The first step is to own a home based business and operate it with the intention to make a profit. The key word there is "intention". You don't actually have to make a profit to take advantage of these benefits. Now, you can start a home based business for little cost and can run it part-time from your home while having a full-time job.
In time, and with some effort on your part, you will be able to quit your day job and work from your home full-time and take advantage of all of the benefits a home based business has. The greatest part is you can take advantage of the home based business tax benefits as soon as you start your new business!
Owning a home based business enables you to deduct some personal expenses you wouldn't normally be able to deduct. These things include but are not limited to: dining out, a new computer for the office, dental and medical expenses, and some vacation related expenses. The money you can deduct for operating a home based business is not insignificant and can amount to well over ten thousand dollars.
Here are the top five deductible expenses for Home Based Businesses:
1. Travel Deduction
Did you know the Internal Revenue Code (Section 162) allows you to deduct "traveling expenses…while away from home in pursuit of a trade or business…"? As the owner of a home based business, you can visit family and friends all over the world and deduct some of the expenses related with the trip. You just have to make sure at least half of the days of your trip are "business days". Essentially, as long as you plan ahead and document properly, you can deduct a lot of the costs associated with traveling and vacationing... Every year. How is that for a home based business tax benefit?
2. Meals and Entertainment Deduction
First things first, in order to take advantage of this tax benefit, you must have proper documentation. This primarily means you need to save your receipts and record who you spoke to about your home based business. Usually, you will be able to deduct up to 50 percent of the cost, but make sure you check beforehand.
As long as it is related to your home business and document the costs properly, you can also deduct up to 100 percent of the expenses of entertaining people in your home. You may come to recognize the tax benefits are much greater if you entertain in your home instead of taking someone to your favorite restaurant.
3. Home Office Deduction
This one of the more intricate home based business tax benefits, but it has the potential to save you thousands of dollars every year you own your business.
To claim the home office deduction:
1. You must render significant administrative or management activities for your business out of your home. For example, you do your paperwork, make calls, do your training, and perform other business functions out of a set area in your home.
2. You have no other office where you conduct significant management or administrative activities for your business.
3. You must use a specific part of your home exclusively for business. It doesn't need to be an entire room though. A particular section will do.
4. You must use this designated section regularly for at least 45 minutes a day, four or more days a week. The work hours must not be occasional or sudden.
What can you deduct? You are allowed to deduct part of your home, utilities, and part of the interest and taxes you pay that are related to owning your home. You can also deduct office supplies like new computers, printers, phones and furniture used for your home based business.
4. Medical Expenses Deduction
In order to take advantage of this home business tax benefit and, you need to employ your spouse and cover them with a comprehensive family medical plan. This allows you to deduct all of the costs associated with the your family's medical expenses. However, there two important requirements in order to take advantage of this deduction.
The first is you must have evidence your spouse has done actual work for your home based business. The second is you must establish a legal document called a "Self Insured Medical Reimbursement Plan." Do a search on that phrase in Google to see what that entails. It's pretty straight forward.
5. Vehicle Deduction
This IS the most complicated home based business tax benefit you get. It is also where most people get into trouble with the IRS because they didn't correctly document their vehicle related deductions. If you are going to use vehicle deductions, I can not stress enough that you MUST document everything properly. Keeping a diary or travel log to track mileage, maintenance costs, etc. will save you time and many headaches.
How does the vehicle deduction work? Basically, you determine how much of the time you use your vehicle for your home based business as a percentage. You are then allowed to take that percentage of time and apply to the cost of operating your vehicle. For instance, if you use your vehicle 60 percent of the time for your home based business, you are allowed to deduct 60 percent of the costs of operating the vehicle.
That's it. Utilizing these five strategies correctly will allow you to take full advantage of your Home Based Business Tax Benefits and can save you thousands of dollars every year. The best part is they are completely legal and ethical!
If you are not sure how to do anything mentioned in this article or have any other questions, please consult a tax professional. Do not assume what you are doing is correct until you speak with a tax professional.
If you would like to learn more about Home Based Businesses, please check out TimBeaudoin.com.

About the Author Tim Beaudoin.