5 Home Business Tax Exemptions

Work-at-home entrepreneurs can take advantage of several home business tax exemptions, which can have a huge impact on their overall tax liability. If you use your home office for business, tax laws make it possible to deduct business-related expenses. Keeping accurate records is important, and the expenses do have to be ordinary and necessary to your industry. Consider these 5 home tax exemptions for your business:

Tax Exemption #1--Home Office Deduction

You're allowed to deduct expenses related to your home office. As long as you've designated a separate room or a large enough portion of a room for business use only, it's legal to take a home office deduction. Some of the expenses you can deduct are these:

  • Rent or mortgage
  • Rental or homeowner's insurance
  • Utility costs
  • Telephone, such as a separate line dedicated to business use only
  • Repairs
  • Maintenance
  • Property taxes

To take a home business tax exemption, you have to figure out the percent you can take off each bill. The percentage is determined by dividing the square feet of the home office by the total square feet of the home.

Tax Exemption #2--Health Insurance Premiums

Health insurance premium costs are a welcome deduction to many entrepreneurs who work from home. You can deduct the costs on your income tax returns, but you cannot also deduct the costs for entire family plans. If you're on a family plan, find out the rate for an individual plan and deduct that amount. If your spouse or children are employees of the business, then you can deduct their portions of the premium costs as well.

Tax Exemption #3--Home Office Supplies

Buying supplies here and there can add up, which is why you need to keep track of all receipts. You can claim home business tax exemptions for office supplies as long as they are legitimate business expenses. Some entrepreneurs get into trouble when they try to take business deductions on items they purchased for personal use.

Tax Exemption # 4--Travel Expenses

Your business may require you to travel to meet clients, deliver products or services, or entertain prospective clients. Mileage and travel costs are legitimate home business tax exemptions. You can take a standard deduction or track your car mileage to and from each destination that's related to your business. It's not necessary to have a separate business vehicle to take advantage of deductions. The costs of tickets, such as airline or train tickets, are also deductible.

Tax Exemption # 5--Professional Fees

Hiring a small team of professionals may be necessary from time to time as you grow your business. Team members may include a lawyer, an accountant, a bookkeeper and a virtual assistant. You can deduct professional fees that are ordinary and necessary to your business.

Don't overlook these home business tax exemptions as you plan for and prepare your taxes. They could make the difference between owing taxes and receiving a tax refund.