One of the most tempting but also terrifying small business tax deductions is for a home office — deducting the cost of operating out of your home can help you save on taxes, but complying with IRS regulations can be a little daunting.
Accountants say the good news is that the deduction, which used to be considered a fast way to an audit by the IRS, doesn’t raise red flags with the government as it did in the past.
Still, business owners often make mistakes trying to claim the deduction that can grab the attention of the tax authorities, something every taxpayer wants to avoid.
Stephen Fishman, an attorney and author of Home Business Tax Deductions said a common error company owners make is to try to deduct space in their homes that has both business and personal uses. That won’t fly with the IRS.
“You have to use the space in your home exclusively for business,” Fishman said.
If you’re thinking of claiming the deduction, you need to get yourself educated about the IRS’ requirements. The first thing you should probably do is download and carefully read IRS Publication 587, Business Use of Your Home, from the IRS Web site.
There are also several small business and home business tax guides available in bookstores that can give you a grounding about the deduction.
Also take a look at the IRS form you’ll need to file, 8829, Expenses for Business Use of Your Home, and its accompanying instructions. They can also be downloaded from the IRS Web site.
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