What is a homebased business?

Tax advantage of homebased image consulting business. What is deductible??

• What are the tax advantages (deductions) for homebased image consulting business? Does the 5 years to show a profit apply to this type business also?

• Answer:

  Dear L York, You're asking two questions. Let me answer the 2nd one first. "Does the 5 years to show a profit apply to this type business also?" A general rule of thumb for all (non-farming) businesses is that they must show a profit 3 years out of five to avoid being considered as a hobby by IRS. Naturally, as with all other tax law, there are ways around this. But, the best way is to do a great job documenting your business plan, showing how and when you expect to show a profit. Moving on to your first question: "What are the tax advantages (deductions) for homebased image consulting business?" In general, as a home-based business, you get to deduct: First - All normal business expenses Next - Direct expenses that relate specifically to the home office space you're using: carpeting that area repairs to that area cleaning of just that area new furniture or equipment in that area Last - A percentage of total expenses of the home, like mortgage, property taxes, or rent, and utilities, insurance, maintenance. You come up with the percentage by figuring out the square footage of the office space and the square footage of the total house or apartment. Divide the office space by the total area of the house - and you have your business percentage. You'll also be able to take depreciation on the business percent of the building. Remember to deduct the land value from the total cost and improvements. There are all kinds of red flags about having an office in home. But, if you're really running the business there, use the tax benefit. Notes: 1) If your business has a loss from operations, you won't be able to use the office in home expenses that year. They'll be carried forward to be used in future years. 2) If you own the home and plan to sell it, when you sell it, you will be paying tax on the depreciation you've deducted. I have no doubt you'll need some clarification on this. This is an area that it would really take an entire book to cover properly - well, at least a very long chapter. So, please don't hesitate to ask. Best wishes, Your TaxMama-ga