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So how do you determine your actual home-office space? This is the area in your home dedicated solely to the running of your business. Once you figure out the percentage of your home office compared to your overall home, then you can go back to your heating bills, electric bills and all other bills that go to supporting your home, and figure out the amount you can deduct for running your business.
- Expert Opinion: "Don't measure your home-office space yourself. When you do, you almost always shortchange yourself," says Ennico. How to Do It Right: It's a good idea to have a contractor measure your space professionally. They can provide you with a letter stating the exact square footage of your home-office space should you need to substantiate it with the IRS.
Tax Write-Off: Home-Office Computer
As our experts pointed out before, it's not a good idea to mix your business world with your personal life. So they recommend never using your home office computer for personal tasks if you can help it.- Expert Opinion: "If this is the only computer in your house, you'll have to calculate the percentage of total time you use it for business purposes," suggests Ennico.
- How to Do It Right: Ideally, your best option is to purchase a laptop and dedicate it to being your personal computer. This way you can avoid any messy situations come audit time.
Tax Write-Off: Rent
Wondering if you can still take the home office deduction if you're a renter? The answer is yes. But you need to know the right way to go about it.- Expert Opinion: "If your landlord is an individual or unincorporated business, such as a partnership or LLC," says Ennico, "you may have to send IRS Form 1099 to your landlord in January of each year showing how much of your rent you're deducting."
How to Do It Right: To ensure that you handle this deduction appropriately, it's a good idea to check with your accountant for details.
Tax Write-Off: Personal Expenses
This is a category business owners can easily get into trouble with if they're not careful. The bottom line is, you simply can't deduct services of a purely personal nature that aren't related to your business. For instance, you can't deduct such homecare services as gardening, landscaping and tree removal simply because you work out of a home office.- Expert Opinion: "People start to get in trouble when they try to make personal expenses business expenses," says LeValley.
How to Do It Right: If in doubt as to whether an expense is deductible for your business, LeValley recommends getting a second opinion. "I think that even if you're very capable and even if you've had some experience on your own," LeValley says, "it's always good to get what I call a 'financial checkup' every once in a while."
Tax Write-Off: Guard Dog
In order for a dog to qualify as your company's guard dog, it helps, says Ennico, if you're a little afraid of the animal yourself (picture a Rottweiler, Pit Bull or German Shepherd). Believe it or not, this is a legit write-off if taken correctly.- Expert Opinion: Ennico points out how to use it: "You'll only be able to deduct that portion of his or her total time devoted to 'guard-dog' duty."
How to Do It Right: Though it may seem rather obvious, your dog most also be guarding your inventory. Another interesting tidbit: Though you can deduct expenses relating to the dog, you can't deduct the dog itself. But you can depreciate it over its expected lifespan as determined by a local breeder. Who would've thought?
Tax Write-Off: Work-Related Uniforms or Costumes
The dos and don'ts of this tax write-off are fairly simple: If the costume or uniform is something you could wear outside your job, you shouldn't write it off. If, however, it's obvious you can only wear it for the duties of your specific job, then it qualifies as a write-off. So a new suit wouldn't qualify since you can wear it other places outside of your work environment. What about a clown suit, you say? That's a different matter.- Expert Opinion: LeValley urges taxpayers to go for the write-off if it's a legit expense. "If the expense is real, take it," she says. "It may be strange, it may be large, but whatever it is, if it's real, be prepared to substantiate it but don't be afraid to do it."
How to Do It Right: A perfect example of some rather unusual clothing you can write off involves a Las Vegas showgirl who was trying to write off the tight, sequined costumes she purchased for her performances. LeValley says the showgirl was told she couldn't deduct the costumes since they were clothing and she could wear them elsewhere. To prove that theory wrong, the woman showed up at her audit in one of her costumes and said, "Where in the world do you think I could wear this? I can't even sit down!" Needless to say, she won her case.
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