Tax Benefits Of A Home Business

Posted on Posted in Small Business Finance

A new home business owner or a person thinking of starting a home business may not realize that there are very good tax benefits to running a business from home.

If you take a minute to think of a business in, say a retail shop, you will quickly see that they will be able to get tax deductions for rental, telephones, depreciation, insurance and other costs associated with a business.

Well the same applies to a home based business.  Certain expenses are tax deductible.  It pays to know what these expenses are in your state.

Although tax benefits are a bonus for a home based business owner, before starting a business an operator needs to calculate that they are going to make a profit from the business. For example you may have this scenario for a years trading:

25,000    Sales

10,000    Less Expenses

15,000    Profit

At first glance of your figures you may agree that you took $25,000 in sales but you feel that your expenses were only about $5,000 (most of it stock), so what could be making up the other $5,000?

The expenses (excluding stock) could be:

Telephone and internet

Postage

Insurance

Vehicle expenses including petrol, repairs, maintenance

Rent or mortgage expenses (which is a pro rate portion of the floor space taken up in the house for the purposes of the business)

Depreciation on car and equipment (or you may write your equipment down 100% in the tax year depending on cost and rulings)

Perhaps you can now appreciate how you do benefit from a home run business with some of your home expenses being met by the tax department, so to speak.

So instead of your income being $20,000 you have been able to reduce it down to $15,000 with the extra expenses.

This is all important when you are trying to get funding or when you are trying to work out the true cost of running your business. Even though we say the expenses are a benefit, they are in actual fact costs which need to be taken into account when pricing your product or service.

Compare it to going to work!

If you had the same phone, internet and vehicle costs but still had a job outside the home, then these expenses would not be tax deductible.

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