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Navigating Murky Waters: Tax Challenges for Home-Based Businesses | Part Four

    Published July 24, 2023

    Table of Contents

    • Part One: Importance of Home-based Businesses in the modern economy
    • Part Two: Tax Obligations for Home-Based Businesses
    • Part Three: Identifying Tax Deductions for Home-Based Businesses
    • Part Four: Overview of deductible business expenses for home-based businesses
    • Part Five: Understanding self-employment tax Obligations
    • Part Six: Overcoming Obstacles with Sales Tax
    • Part Seven: Collecting and Reporting Sales Tax
    • Part Eight: Employment Taxes and Independent Contractors

    Business Expenses


    In our previous post, we discussed tax obligations for home-based businesses, including registration, reporting, record-keeping, and timely tax filings. We emphasized the need for licenses and registrations, as well as maintaining proper financial records. Today, we explored the home office deduction, eligibility criteria, calculation methods, limitations, and tips for maximizing the deduction. The eligibility criteria include exclusive use, the office being the principal place of business, regular business use, self-employment, and using the office as the principal place to meet clients. Calculation methods include the simplified option and the regular method, while limitations and documentation requirements were also discussed. Tips for maximizing the deduction included understanding eligibility criteria, determining office space, keeping detailed records, separating business and personal expenses, considering the simplified option, staying updated on tax laws, and consulting a tax professional if needed.

    Today, we will look at some common examples of business-deductible expenses and industry best practices for record keeping.

    Overview of deductible business expenses for home-based businesses

    Alright, a brief overview of deductible expenses for home-based businesses.

    Examples of common deductible expenses

    1. Exclusive Expenses: Here’s a fun twist—expenses that are exclusively for your home office can be fully deducted. That means that the snazzy new office chair or the fancy standing desk you bought to perfect your “power pose” during video calls can be entirely written off. It’s like splurging on business-related goodies guilt-free. You’re practically a professional shopper now!
    2. Non-Deductible Items: Alas, not all expenses are created equal in the eyes of the IRS. Some items, like the flashy home theater system or the luxurious Jacuzzi tub, are deemed too lavish for business use and are not deductible. Sorry, but no matter how many PowerPoint presentations you imagine while soaking in bubbles, the IRS won’t approve it. A business bath time is a hard no!

    Record-keeping best practices

    I’m going to get a little technical here. Let’s take a look at record keeping best practices:

    1. Set a goal for record keeping every month
    2. Make a plan to achieve your goal for record keeping
    3. Follow through and carry out that plan with consistency.

    Now I’d recommend using some software tools at this point. Let me explain:

    1. Software is digital – backups are easy and efficient
    2. Software saved in multiple locations is almost instant.
    3. Making a bunch of copies all the time can be expensive and time consuming.
    4. Software scales with you. Paper files? Not so much.