Your Home-Based
Business
Is it really a
business?
Have
you ever listened to a seminar on how to earn extra money by starting a
home-based business? Often the speaker will tout the tax benefits of such
activities by claiming you are allowed to deduct all sorts of expenses
related to your home that are normally considered personal expenses. If
the idea seems too good to be true, it often is. In some cases, the IRS
has determined that some of these purported income-producing activities
are nothing more than a scheme designed to avoid paying tax, and they have
shut them down.
In order to deduct expenses related to the business use of your home, you
must operate a “bona fide” business, as well as meet other specific
requirements. Even then, your deduction may be limited. To qualify to
claim expenses for the business use of your home, you must meet the
following requirements:
-
Your use of the business part of your home must be:
* Exclusive;
* Regular; and
* For your trade or business.
-
In addition, the business part of your home must be
one of the following:
* Your principal place of business;
* A place where you meet or deal with patients,
clients, or customers in the normal course of your trade or business; or
* A separate structure (not attached to your home)
you use in connection with your trade or business.
The thing to keep in mind is that operating a home-based business cannot
simply be a way to deduct otherwise nondeductible expenses. You must have
a bona fide business purpose with the intention of making a profit. Don’t
fall prey to a con artist who promises huge profits and even bigger tax
savings.
