People who are doing small home-based business have the right to deduct business expenses for use at home before paying taxes. This is legal but some people try to cheat revenue services by deducting bogus expenses which do not actually occur. This illegitimate deduction can cause penalties. Via Taxation assignment writing help experts try to give an overview to people which tax schemes to be avoided to prevent the loss in repute and penalties.

Some “businesses” are set up only to have illegitimate tax deductions. The internal revenue system has warned such businesses against the illegal and unwarranted deductions that these may result in heavy fines in addition to the tax they have to pay. So, we have to find out which type of home business expenses are legal and which are not?

How to Set Up a Legal Home-Based Business?

A legal home-based business qualifies for tax deductions. For this you have to set up the business legally. According to IRS, the business must have a “clear business purpose and profit motive.” Following are few steps to set up a legalhome-basedd business:

  • Select the business type: First of all, you have to select the type of business you want to carry on. It may be a sole proprietorship firm, a limited liability company, corporation or any other small business.
  • Obtain EIN: If you have employees or not, it is compulsory to have an Employment ID Number (EIN). This will be used in all future business transactions.
  • Set up a business account: You should open a bank account to be used for business purpose only. This account should hold all your business transactions and money. The business expenses should not be mixed with your personal expenses.

How to have Deductible Office Space?

A portion of your home can be used only for business purpose. This area should pass the IRS deduction test. The IRS rules say that the portion of the house used regularly and exclusively for business purpose can qualify for the deduction. This separate space is called “Principle place of business.” This should not be disturbed by other daily chores of the house. If your children are playing in your business space, it may not qualify for deduction. You can choose a spare bedroom or garage depending upon the availability. The place of business should be used for meeting the clients, invoicing them, scheduling future appointments, operating your business billings, payments, expenses etc.

How to Calculate Home Office Expense Deduction?

There are two easy ways to calculate the amount of deduction.

  • The IRS has simplified the first option. It says that your minimum area for workplace should be 300 square feet. Multiply it by $5 per square foot. Here you will have your deduction. (These rules are different in different countries). The smaller the space, lesser will be the deduction.
  • The first simplified option has been available since 2013. Before that home-based business had to carry out complicated calculations to reach their deductions. This is still popular with some entrepreneurs as this will help you to save more money. Here a form called “Form 8829” is used for calculating deductions. First the total area of your home is calculated. Then the place of business area is calculated. If it comes out to be about 10% of the total, then you are eligible for 10% deduction.

Some other tax deductions are on expenses like casualty losses (with limits), mortgage interest, insurance, home depreciation, repair in the workplace, utilities etc. BME provides online assignment help to you to deduct your taxations in a right and legal manner. So, get help in Taxation assignment from BookMyEssay only!