Abby and Ken Kohut both launched home-based businesses three years ago. Staffing Symphony, Abby Kohut’s recruitment consulting firm, occupies an office in their Springfield home a few steps from the office of Ken Kohut Photography.
“It is a wonderful experience to have your own business,” Abby Kohut said. “But you have to be aware that expenses creep up as the monthly bills come in.”
Entrepreneurs tend to underestimate how much things will cost, because “when you work for a company, your phone, cell phone, travel, electricity — they’re all paid for by your employer,” she said. One of the keys to managing a successful home office is figuring out when money should be spent, and when it shouldn’t, she said.
The Kohuts, like thousands of other Americans who run businesses from home, enjoy the tax benefits of the home-office deduction. Basically, this involves taking the square footage of your office and calculating that space as a percentage of the square footage of the house, then deducting that percentage of your house expenses from your income.
Martinsville CPA Gail Rosen said “the home-office deduction is very good, because you are getting a deduction for things you are already paying for.” Among the eligible expenses: property taxes, homeowner’s insurance, heat, electricity, water, garbage, sewer fees, condo fees, mortgage interest and home repairs. Rosen said these deductions reduce all your taxes: federal, state, Social Security and Medicare.
If you’re paying 40 percent of your income in taxes, and claim $10,000 in home expenses, you’ll save $4,000 in taxes, “a significant savings,” she said. “You have to keep very good records to use the home-office deduction, but it’s worth it.”
Photo by NJ Biz.