Introduction

1. Some Tax Basics

• How Tax Deductions Work
• How Businesses Are Taxed
• What Businesses Can Deduct
• Adding It All Up: The Value of Tax Deductions
• Businesses That Lose Money
• Annual Dollar Limit on NOL Deduction

2. Is Your Home Business Really a Business?

• Proving That You Are in Business
• Tax Consequences of Engaging in a Hobby
• Investing and Other Income-Producing Activities

3. Getting Your Business Up and Running

• What Are Start-Up Expenses?
• When Does a Business Begin?
• If Your Business Doesn’t Last 15 Years
• Expenses for Businesses That Never Begin
• Avoiding the Start-Up Tax Rule’s Bite

4. Home Business Operating Expenses

• Requirements for Deducting Operating Expenses
• Operating Expenses That Are Not Deductible
• Operating Expenses Paid With Paycheck Protection Program Loans
• How to Report Operating Expense Deductions

5. Deducting Long-Term Assets

• Long-Term Assets
• Deducting Inexpensive Property: The De Minimis Safe Harbor and Materials and Supplies Deduction
• General Rules for Deducting Long-Term Personal Property
• Bonus Depreciation
• Section 179 Deductions
• Deducting Repairs and Improvements
• Regular Depreciation
• Deducting Business Vehicles
• Tax Reporting and Record Keeping
• Leasing Long-Term Assets

6. The Home Office Deduction

• Qualifying for the Home Office Deduction
• Corporation Employees
• Calculating the Home Office Deduction
• Simplified Home Office Deduction Method
• IRS Reporting Requirements
• Audit-Proofing Your Home Office Deduction

7. The Pass-Through Tax Deduction

• You Must Have a Pass-Through Business
• You Must Have Qualified Business Income
• You Must Have Taxable Income
• Deduction for Taxable Income Up to $170,050 ($340,100 if Married)
• Deduction for Income Above $170,050 ($340,100 if Married)
• Taking the Pass-Through Deduction
• Strategies to Maximize the Pass-Through Deduction

8. Getting Around Town: Car and Local Travel Expenses

• Deductible Local Transportation Expenses
• The Standard Mileage Rate
• The Actual Expense Method
• Other Local Transportation Expenses
• Reporting Transportation Expenses on Your Tax Return
• When Clients or Customers Reimburse You

9. Leaving Town: Business Travel

• What Is Business Travel?
• Deductible Travel Expenses
• How Much You Can Deduct
• Maximizing Your Business Travel Deductions
• Travel Expenses Reimbursed by Clients or Customers

10. Inventory

• What Is Inventory?
• Deducting Inventory Costs

11. Hiring Help: Employees and Independent Contractors

• Employees Versus Independent Contractors
• Tax Deductions and Credits for Employee Pay and Benefits
• Employing Your Family or Yourself
• Tax Deductions When You Hire Independent Contractors

12. What If You Get Sick? Deducting Medical Expenses

• The Affordable Care Act (ACA)
• The Personal Deduction for Medical Expenses
• Deducting Health Insurance Premiums
• Sick Leave and Family Leave Tax Credits for the Self-Employed
• Tax Credits for Employee Health Insurance
• Health Reimbursement Arrangements
• Health Savings Accounts

13. Deductions That Can Help You Retire

• Why You Need a Retirement Plan (or Plans)
• Individual Retirement Accounts (IRAs)
• Employer IRAs
• Keogh Plans
• Solo 401(k) Plans

14. More Home Business Deductions

• Advertising
• Business Bad Debts
• Casualty Losses
• Charitable Contributions
• Dues and Subscriptions
• Education Expenses
• Entertainment and Meals
• Gifts
• Insurance for Your Business
• Interest on Business Loans
• Legal and Professional Services
• Taxes and Licenses

15. Using Cryptocurrency in Your Business

• What Is Cryptocurrency?
• Why You Might Want to Use Cryptocurrency in Your Business
• Tax Treatment of Cryptocurrency
• IRS Reporting of Cryptocurrency Transactions
• Record Keeping for Cryptocurrency Transactions
• Accounting for Cryptocurrency Transactions
• How to Report Cryptocurrency Revenue to the IRS

16. Record Keeping and Accounting

• What Records Do You Need?
• Records of Your Income and Expenses
• Records Required for Specific Expenses
• How Long to Keep Records
• What If You Don’t Have Proper Tax Records?
• Accounting Methods
• Tax Years

17. Businesses Owned by Spouses

• An Employer-Employee Arrangement
• Establish a Qualified Joint Venture
• Form a Business Entity
• Do Nothing

18. Nine Tips for Avoiding an IRS Audit

• Tip #1: Be Thorough and Exact
• Tip #2: Don’t File Early
• Tip #3: File Electronically
• Tip #4: Form a Business Entity
• Tip #5: Explain Items the IRS Will Question
• Tip #6: Avoid Ambiguous or General Expenses
• Tip #7: Report All of Your Income
• Tip #8: Watch Your Income-to-Deduction Ratio
• Tip #9: Beware of Abnormally Large Deductions

Index

Introduction

This book is for you if you’re one of the millions of Americans who run a business from home. It shows how home business owners can reduce their taxes by taking advantage of the huge array of tax deductions available to them.

Did you know that, if you have a legitimate home business, you might be able to deduct:

• a portion of your rent or mortgage
• expenses for local and business trips, and
• medical expenses for yourself and your family?

All of these deductions—and many others—can add up to substantial tax savings. The IRS will never complain if you don’t take all the deductions available to you. In fact, the majority of home business owners miss out on many deductions every year simply because they aren’t aware of them—or because they neglect to keep the records necessary to back them up.

That’s where this book comes in. It shows you how you can deduct all or most of your business expenses from your federal taxes. This book isn’t a tax preparation guide—it doesn’t show you how to fill out your tax forms. (By the time you do your taxes, it might be too late to take deductions you could have taken if you had planned the prior year’s business spending wisely and kept proper records.) Instead, this book gives you all the information you need to maximize your deductible expenses—and avoid common deduction mistakes. You can (and should) use this book all year long, so that you’re ready to take advantage of every available deduction opportunity come April 15.

Now, more than ever, you’ll need guidance when it comes to understanding your taxes. In 2017, Congress enacted the most sweeping changes to the tax code in over 30 years when it passed the Tax Cuts and Jobs Act (TCJA), which took effect in 2018. Then, to stave off economic devastation in the wake of the coronavirus (COVID-19) pandemic, Congress revised the nation’s tax laws yet again for 2020 and 2021, temporarily suspending many of the harshest provisions of the TCJA. In 2022, most of these temporary measures ended. For better or worse, U.S. tax law has entered the post-COVID tax era.

Even if you work with an accountant or another tax professional, you need to learn about home business tax deductions. No tax professional will ever know as much about your business as you do, and you can’t expect a hired professional to search high and low for every deduction you might be able to take, especially during the busy tax preparation season. The information in this book will help you provide your tax professional with better records, ask better questions, and obtain better advice. It will also help you evaluate the advice you get from tax professionals, websites, and other sources, so you can make smart decisions about your taxes.

If you do your taxes yourself (as more and more home businesspeople are doing, especially with the help of tax preparation software), your need for knowledge is even greater. Not even the most sophisticated tax preparation program can decide which tax deductions you should take or tell you whether you’ve overlooked a valuable deduction. This book can be your guide—providing you with practical advice and information so you can rest assured you are taking full advantage of the many deductions available to home business owners.

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We hope you enjoyed this sample chapter. The complete book is available for sale here at Nolo.com.