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With so many people working from home these days, the idea of the home office has changed a bit. While some have a dedicated space for their computer and other tools, others work from their couch to supervise the kids. In the long run, it pays to have an office at home because there are many tax benefits and write-offs that come with such a space.
You can save money at the end of the year by updating an existing home office and putting that savings toward your retirement. Today, Willowdale Real Estate presents some helpful tips on how to make the most of your home office as a small business.
Create a formal business structure.
Running a home-based small business is much easier if you have a formal structure, including a tax ID number and an appointed agent who can receive legal documents. While there are some fees associated with creating an LLC, you can usually write these off as start-up expenses. Even more good news is that online tools will help you complete these tasks quickly and easily.
Set up a dedicated space.
If you have an extra room in your home, or even a spot for a desk and computer, set up a work area so you can reap the tax benefits. Typically, working from home allows you to claim deductions for the area you work in, so you’ll need to measure the space and take note of any devices or services you pay for that are for professional use. And if you have a larger work area – say, a basement that needs finishing – now’s the time to get a professional estimate!
Your computer, phone, printer, and even internet service may be eligible for tax write-offs, so speak to your accountant to find out how to ensure that information is included in your returns. But keep in mind that exclusivity is typically a condition for a write-off. It may be ineligible if you use your home office as anything other than a workspace.
No matter where your home office is located, it’s essential to stay organized. Small business expense write-offs require itemized receipts, so update your organizational system with binders or folders that will keep receipts and printouts neat. Create a filing system with a cabinet that will give you easy access to everything you need at a moment’s notice. Set up a monthly purging date so you can stay on top of your paperwork and keep everything current. Rather than keeping all your essential paperwork together in one place, separate personal and professional items to prevent any mix-ups and to keep everything streamlined.
Designate a space for inventory.
If your business requires that you keep inventory or product samples at home, consider keeping them separate from your office space in order to claim that area as a deduction. For instance, you might store inventory in your garage or shed or use part of your den or attic to store samples and other products. Typically, the space doesn’t have to be used only for inventory, but to get the tax benefits; you do have to use it regularly.
Changing your office space and keeping your at-home business compliant with local laws is essential when you work from home. Do some research online to ensure you have the proper permits and documentation, and find out which tax forms you’ll need to fill out for the previous year. Staying on top of your responsibilities will prevent any nasty surprises down the road.
If you like this article you can read more articles by Tina Martin
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Contributing Author: Tina Martin