Make sure your Home-Business Deductions are Eligible

Small businesses can be run out of the home. Running a business out of your home decreases the overhead costs. A home business can also be a great tax deduction – as long as you're aware of the current tax laws regarding deductions for a home business.

In the past, it was a bit easier to claim a home office deduction. As long as the business was conducted in the home, business owners could claim a portion of their utility bills, mortgage payments and other expenses. Now, the rules are much more defined and a business owner working from home has more work to do to ensure compliance, because the last thing you want is an audit from the IRS. For anything and everything purchased for or bought by the business, receipts and records of all transactions must be kept. Then, if your number does come up, you'll be ready to prove what you've claimed on your tax return.

First of all, your home business should operate from a dedicated location in your house. It could be as small as a desk in the den or dining room. Some people set up shop in their garage for more space. To keep the business separate from the rest of the household, you'll ideally want to find a place that can be utilized for business purposes only. Additionally, the area of the home office must be the primary location of the business. This comes into play when offsite facilities are used for storage of supplies and other materials or for conducting some of the business's activities. The majority of the work has to be conducted in the home office.

But, that's not all. Again, the home-business-office area is also required to be used exclusively for business operations. Setting up a computer on the table in your living room is not going to cut it as a home business office if you move the computer every night so that the family can eat dinner there. For this reason, the garage or other dedicated area is a great place to set up because it's somewhat out of the way of normal family traffic.

If the business meets these requirements, the home business owner is also entitled to deduct a proportion of the household bills that are equal to the amount of space and time used by the business. Just add up the entire bill for each utility for the year and then deduct the qualifying percentage.

Home businesses are eligible to claim other expenses, as well. Office supplies, inventory and other necessities for the operation can be itemized on your tax forms. What's more, the entire business can be claimed as a loss if its expenses outweigh the total income (but be very careful here). After all, the goal of every business is to turn a profit for its owner.

Once the business begins to make a profit it will be subject to paying quarterly taxes. If you pay these taxes and the business claims a loss at the end of the year, those funds can be recouped. Be sure to check the IRS website for further information.