Declaring A Home Office For Your Online Business

Whether you have a traditional business where transactions occur primarily offline, partially online, or completely online, you will need to file your taxes. When it comes to tax season, you’re in the same situation with other types of businesses. You are still required by the IRS to declare all of your income, file your tax return and pay your taxes and other applicable expenses. In a positive light, even though your business may be a completely online effort, many of the same tax benefits and even loopholes that apply to regular offline ventures will also apply to online businesses. The challenge is for you to determine which of those benefits and loopholes can be applied to your company so that you won’t be a candidate of an IRS audit.

One primary tax break that online business owners can use is having a home office. Often, online businesses are carried out at home, thus, depending on specific requirements, business owners can actually qualify for these significant tax deductions. They just have to remember that for a house to be considered as home office, it should be regularly and solely used for business purposes. For example, a dining room used by a family to have dinner in the evening and used as an office during the day wont classify under this tax deduction.

For it to qualify as a home office, any given space or room must be primarily used for business, like daily operations and client meetings. You may want to keep it simple instead of dividing the use of a particular space between personal and business matters. Claiming that a room is used for business operations 100% of the time rather than 75%-25% for business and personal uses, respectively, is a more beneficial option. This strategy will keep you away from potential IRS problems.

Another stipulation that the IRS requires for this tax deduction is that the space you are claiming as your home office must be considered as your primary place of business. Online business owners generally find this stipulation quite easy to meet since they operate completely from their homes most of the time anyway. Basically, the IRS wants to make sure that all business-related activities you carry out in your home office, is not also conducted somewhere else, particularly places like rented offices or suites.

These two main requisites, when met, will certainly allow you to deduct many costs associated with your office and home. Among other expenses, these costs include rent or mortgage payments, insurance costs, utility bills and property taxes. Obviously, though, you’re not allowed to deduct all of your rent, or all of your mortgage payment. The way it works is usually through a percentage guide. For example, you will be able to deduct $250 from a from your monthly mortgage payment of $10,000 if 25% of your house is used as home office. So every month you would be able to deduct $250 which totals to $3,000 per year. This sort of calculation is a rule of thumb when determining how much you should deduct on all other expenses related to your home. Also, maintaining updated records of your online business will help you avoid IRS problems in the future.

There are also restrictions imposed to online business tax deductions. For instance, you can’t have accumulated deductions that will lead to a net loss in a given year. Specifically, if your business registers annual revenues of $50,000 and your exemptions also total to $60,000, you cannot claim a net loss equaling to that $10,000 difference. What you can do in this case, however, is declare a net gain of zero.

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