Small Business Answers

1. If you run a small business out of your home, you can deduct part of your home as office space and a business expense. The IRS says that it must be a space in your home devoted to your business and absolutely nothing else. Typically, you could just deduct your den, as long as your den doesn’t include things like a bed and a beer cooler! And yes, once you have the metric worked out, you can deduct that fraction for all home expenses that include rent, mortgage, insurance, electricity, and so on.

2. When deducting office furnishings, you can either deduct the full amount all at once for one year or deduct a portion of the expense over a period of seven years, which is also known as depreciation. With depreciation, you have to get a chart from the IRS which specifies how you can break the deductions down.

3. The letter of the IRS code allows for deducting any “ordinary, necessary, and reasonable” item of equipment as fit for deducting as a business expense, defining this as anything that is “helpful and appropriate” for your business. Buying a computer, or even a sound system, can be “ordinary and necessary” for your business needs, but buying the same items for your family room’s entertainment needs won’t do.

4. Consider incorporating a small business. Even a home-based business person, such as a paralegal, private accountant, or web designer can apply to be incorporated. As a corporation, you get much more gracious terms for tax laws. You can deduct many more expenses, have a more gracious time limit in which to pay, and structure your business proceedings with timing such that you could minimize your tax burden.

5. Get in touch with your local chapter of the Small Business Administration. Being a federal government agency that exists specifically to support small businesses, they’re the big government department that’s on your side. They can advise you in matters of financing, including how to work your tax filing at the greatest benefit to you.

6. Consider filing electronically. While it’s unlikely that you could do this yourself, you could certainly do it with just one accountant. Numerous commercial tax preparer services are becoming increasingly sophisticated with their computer-based filing methods every year, making it easier to file quickly and avoid extra time lag and expense in paperwork. Particularly for a small home-based business, electronic filing makes sense.