You know that working from home can be satisfying but did you know that it could also save you money? Beyond the obvious savings like commuting costs, clothing and such you can also take considerable savings on your income taxes.

Home Deductions

When you work from home, there are tax deductions that you can take for using your home for business. There are sometimes complex rules that govern the use of these credits. Let’s look at some potential savings and a few of the regulations surrounding them.

– Office- If you operate a business from home chances are you have an office. You are allowed to depreciate the office portion of your mortgage or rent. Your office must be entirely separate from the rest of the home and be used exclusively for work and or meeting clients or patients.

If your office meets the guidelines, calculate the deduction by getting the percentage of space your office takes up. For instance, if your office is 20% of your home’s total square footage, then you will be allowed roughly 20% of your mortgage as a deduction.

– Business Use of Home- In addition to the home office mortgage deduction you can also deduct repairs, insurance and utilities. This deduction is a little trickier as you will need to determine if it is a direct or indirect expense. The resulting deduction will be a percentage based on this information. It is important that you seek professional assistance as these forms and calculations can be complex.

More Deductions on Schedule C

While the deductions you can take for your home office can be substantial, there are also everyday business expenses that you can claim on schedule C.

– Supplies- Anything that you use exclusively for business can be deducted as an office expense. Paper, staples, envelopes, and even stamps can all be calculated on your schedule C. You need to keep good records and even receipts in a separate file. When you do your taxes, you may not be required to show them; however, you will need them for a potential audit.

– Advertising- Need to get the word out about your home business? Your advertising dollars are deductible.

– Employee Expenses- Obviously you can deduct your employee’s wages, but you can also deduct employee benefits.

– Meals- Certain meals are tax deductible if they are work-related.

– Employ your Children- Are you giving your bundle of joy an allowance every week? Why not “employ” him or her and be able to deduct it on your taxes? This will mean they actually must do some work, empty the trash, and clean the office or if they are older file paperwork.

Anything that pertains to business that they are qualified to carry out is an opportunity for you to employ them. Not only are you saving money with your home based business, you are teaching your children a vital lesson about working and earnings. Money savings with a moral bonus; what could be better than that?

Working at home has many benefits; you have the freedom of setting your own hours and doing what you love. While you are in this pursuit of happiness, do not overlook the many ways you can save money. Uncle Sam has made many provisions to make it more profitable for the home based business owner.

Rhea is an accomplished artist with two small children. She is very talented but is not happy with the idea of leaving her two small kids and going out to work as a graphic designer in the company where she used to work earlier. She may not admit but it gets very frustrating for her at times knowing that she has great potential but just can’t do anything about it. Flicking through a magazine she realizes that she can start her business right from her home.

One may not realize it but working from home is a very profitable option. You will get tax relief on rent you pay as well as if you accomplish the official requirement of doing business from home, you can get tax relief on home office tax.

But first let us confirm who qualifies for the Home Office Tax Deductions. ‘Who’ here may be the owner or an individual who has rented the place. If you are operating your business from this property you are entitled for tax relief in home office tax provision.

Good part is that the IRS is not too particular on the definition of home. It can be a trailer, apartment or a mansion, just a place where you cook your food and spend the night. There are some conditions to be met for qualifying for the home office deductions.

It is essential that you don’t try to mislead the IRS on your business office, if you are not operating from home. They are bound to discover it if your return is scrutinized. Remember to keep proof of all transactions you have with your client at home. Like getting a log book signed etc. The other thing is to keep your home and business account separately.