Tax Tips for Home Businesses

Unless you have experience in accounting and knowledge of the changing tax laws, you probably will not want to rely solely on yourself for tax preparation. However, unless you ask a lot of questions, you may not get all the deductions you are eligible for. Here are a few deductions you may be eligible to take:

• repair and maintenance to home office
• vehicle (mileage or actual-cost method)
• office supplies, printing, postage
• percentage of business meals
• office equipment and furniture
• business travel and moving expenses
• advertising
• educational expenses and licenses
• legal fees and accounting fees
• a percentage of the self-employment tax
• publications and books related to business
• a percentage of your health insurance and medical and dental expenses
• a percentage of real estate taxes, mortgage interest and utilities.

One rule home-office workers should be aware of is: in order to deduct your home office your office must be used exclusively and regularly for business and must be your principal place of business or a place where you meet with customers. To figure the percentage of home-related expenses, divide the square footage of your office by the total square footage of your home.

You also need to take the home-office deduction in order to begin deducting business mileage on your vehicle as soon as you leave your home; otherwise, the mileage doesn't begin until you reach your first business location. Keep a mileage log in your vehicle to record your each business trip, mileage and date.

Now that you know some of the basics, let's discuss how to make it easier and less painful next year.

The first thing you will need is a good accountant. Ask for referrals from people you know. Look for someone who has clients with businesses similar to yours. Make sure he or she has reasonable rates and has a good credential or degree.

Next, make an appointment to talk with him and take a list of questions about your business. Ask him for his opinion on how you might be able to save on your taxes and increase your profitability. Ask if there are deductions you should be taking that you are not. Ask if you should be a sole proprietor, corporation, or partnership. Ask about hiring family members as employees. Ask if you should buy or lease a car for business purposes, take standard mileage deduction or actual expenses and so on. The advice is likely to be worth a lot more than the cost of the consultation.

Another thing you can do to be better prepared for the next tax season is to organize yourself with an accounting program. There are a variety of programs with features for large and small businesses. But how do you know which is best for you? And will you be able to figure out how to use it?

Some popular programs on the market are M.Y.O.B., Peachtree, and Quickbooks. For Mac users, M.Y.O.B. (Mind Your Own Business) Accounting with Payroll 6.01 received high marks from Home Office Computing's - HOC (January 1997 pgs. 83-90) recent review. The program lists for $140 and requires at least 5 MB. You can review a trial version before you buy it by visiting their website at: www.bestware.com.

For PC users, HOC gave Quickbooks Pro 4.0 high marks. It lists for $199 and requires 8 MB. You can review a trial version at: www.intuit.com. HOC also gave high marks to M.Y.O.B. Accounting with Payroll 6.01 for Windows. It lists for $120 and requires 4 MB. View their product at: www.bestware.com.

To check the status of your return, you may call the IRS at (800) 829-4477.