At the end of any year, there’s only one thing on the minds of small business owners: taxes. Pretty soon, it will be time to gather your receipts and start preparing to file your tax return. If you work out of your home, you may still be wondering which expenses are deductible.
From remodeling to monthly bills, Solid Signal has you covered with the following resources to help answer the most common tax questions for your home-based business.
Maximize Tax Savings
If you’re just getting things started with your business, you should really think about setting up a formal business structure. You can easily research your options and complete the necessary paperwork online, including to set up a Michigan LLC. An LLC tends to offer the most tax benefits for small business owners and can also help you save on your personal return. Bonus tip: you can also include any fees you pay in your startup costs, which are tax-deductible.
Home Office Tax Credit
Now this deduction is tricky and tends to trip up entrepreneurs the most. You may think that you meet the requirements just because you run a business out of your home; yet, IRS standards are far more complex. To deduct expenses for your home office, this space must be:
- Regularly and exclusively used for your business.
- The principal location or place of business.
If your new home office meets these standards, you can then decide whether to take the simplified or itemized deduction. While the latter may be more challenging, it could be beneficial if you have invested in a considerable amount of home office equipment or improvements.
Here’s where things get even trickier because repair vs. improvement costs are so different in the eyes of the IRS. Let’s break the two down so you can better understand each.
If you need to pay for remodeling or improvement projects in order to carve out space for your business, don’t count on deducting related expenses on your next return, unless:
- Improvements are also made to accommodate a medical condition or disability.
- Renovations and updates involve installing more energy-efficient equipment.
- Projects boost your home value and decrease capital gains if you sell your home.
On the other hand, any maintenance you perform on your property could help you save on your taxes. Per the IRS, in order for costs to qualify they need to “keep your property in a normal efficient operating condition.” Also keep in mind that both improvement and repair deductions should be used with your personal returns and not your business taxes.
Business Equipment and Tech
Okay, so physical improvements to your home workspace may not be fully tax-deductible. If, however, you need to update the equipment in your office, you may be in luck!
That’s because most tech updates, including new smartphones, laptops, and even home internet connections are easy credits to score on your return. You just need to be using this tech solely for your business in order to take the maximum deduction. To simplify this process, you may want to consider having separate devices, equipment, and services for your business.
Setting up a dedicated internet connection may seem like a complicated process, but you can shop SolidSignal for all of your networking and connectivity needs. With a few clicks, you can pick up a new router, ethernet switch, or power hub to get your home office up and running.
Common IRS Red Flags
Being aware of these savings can help you prepare for your taxes, but you should think twice before filing that first business return on your own. The IRS tends to be more scrupulous when reviewing tax returns for self-employed entrepreneurs and you don’t want to trigger an audit. Instead of taking that risk, consider hiring a pro to prepare your taxes.
If you’ve made changes to your home to support a business, knowing which expenses are deductible can save you time and money. But really, you should invest in professional tax preparation services. Then you can avoid a potentially costly and stressful audit.
Shop SolidSignal for the latest tech for your home, home office, and business needs!
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