Running a business, any business, is about being able to earn more money than you spend to earn it. When working from home, this task suddenly becomes a lot easier. Not only are your expenses significantly lower and you get a chance to deduct a part of a utility bill as the cost of running a business but you also have some hidden perks in form of tax depreciation. All in all, there are several things you need to know about home business tax depreciation and here are some of them.
1.You can’t deduct more than you earn
The first thing you need to understand that, when it comes to home business tax depreciation, the estimate is just one part of the equation. It’s impossible for you to get a deduction that surpasses your profit. For instance, if your depreciation estimate is $2,000 and you manage to earn only $1,000 that year, you will be able to depreciate only $1,000. Fortunately, those additional $1,000 that you couldn’t deduct don’t go to waste, seeing as how they get transferred to the following year. This is a massive advantage and these unused deductions tend to accumulate quite efficiently.
2. Business purposes only
The next mistake that a lot of home-based entrepreneurs make is to try to get a deduction for a dual-purpose room. Some people use their bedroom as a part-time office but from the tax deduction point of view, this simply won’t cut it. This is due to the fact that you can only deduct the percentage of your home that you use for business-only. This means that you need to have a single-purpose room within your home that you’ll use only for business. When you’re not working, you’re not using the room. It may sound a bit harsh but it is, indeed, that simple.
Another thing you need to understand here is the fact that you need to know the exact percentage of your home that you use for these business purposes. In other words, you measure your entire home (the 100 percent) and you calculate the size of the room (or the area if you’re using more than one room) for these purposes. Others, nonetheless prefer to use a simplified version where, instead of counting the square feet used to calculate the size of the room, they merely count the number of rooms.
3. Knowing what’s depreciable
One of the most important things you need to know is which of these assets are depreciable. A mortgage on your home is not something that you can depreciate, which causes a bit of confusion, seeing as how a mortgage is an asset that can be used as collateral. On the other hand, you can depreciate a portion of the house that you’re using for business, provided that you do own the house. You see, you can only depreciate those assets that you, yourself, own.
One more thing is worth mentioning, due to the fact that these things are usually more complex and unique than you may assume at the moment. This is why you might want to look for professional advice from professionals employed in specialized agency such as Tax Depreciation Quotes and act based on their opinion.
4. Not just real estate
Finally, it’s important that you are aware of the fact that a tax depreciation stands to be merely a tip of the iceberg of all tax benefits you can exploit for the sake of your home business. As a home-based business, you can even deduct the cost of the fuel that you’ve used for business purposes. Other than this, there’s the insurance and the cost of office supplies. In some scenarios, even the maintenance of your home may qualify.
In the end, you should be aware of the fact that using every financial advantage, asset and resource on your disposal brings you one step closer to your break-even point and makes you profitable and self-sustainable much faster. Once you realize that this is a race against time, you’ll finally realize why – faster, makes a world of difference in this particular scenario. Of course, the above-listed four suggestions are handy but they’re far from all you can do in order to forward your business’ current financial status. The rest of these methods are up for you to discover.