Tax Breaks For New Entrepreneurs
As a new entrepreneur, you need to think about saving your receipts for your tax returns.
- Your Home Office if it’s your principle place of business
- Your space is used exclusively for work
- Telecommunitefor the convenience of your employer
- If you make as much as you deduct
- Car depreciation, insurance, mileage
Tax deductions without receipts
“You may be eligible to claim phone and internet usage where required by your employer. If you only use your phone and internet for work occasionally, you can make a claim of a reasonable estimate of your costs up to a maximum of $50 without the need to keep detailed records.
“If you are claiming over $50, you’ll need more detailed records and possibly a diary to show your business use.”
Three golden rules for work-related expenses claims:
• You must have spent the money yourself and weren’t reimbursed;
• It must be directly related to earning your income, and;
• You must have a record to prove it.
How to Calculate Deductions for Your Home Office
Your home office business deductions are based on the percentage of your home used for the business or a simplified square footage calculation.Percentage of your home method:The most exact way to figure this proportion is to measure the square footage devoted to your home office and find what percentage it is of the total area of your home. If the office measures 150 square feet, for example, and the total area of the house is 1,200 square feet, your business percentage would be 12.5% (150 ÷ 1,200).An easier way is acceptable if the rooms in your home are all about the same size. In that case, you can figure the business percentage by dividing the number of rooms used in your business by the total number of rooms in the house.Special rules apply if you qualify for home office deductions under the day care exception to the exclusive-use test. Your business-use percentage must be discounted because the space is available for personal use part of the time. To do that, you compare the number of hours the day care business is operated, including preparation and cleanup time, to the total number of hours in the year (8,760).Assume you use 40% of your house for a day care business that operates 12 hours a day, five days a week for 50 weeks of the year. That’s 3,000 hours out of the total of 8,760 hours in the year. That’s 34% of the available hours, so your business write-off percentage is 13.6% (40% of 34%).Simplified square footage method:Beginning with 2013 tax returns, the IRS began a simplified option for claiming the deduction. This new method uses a prescribed rate multiplied the allowable square footage used in the home.