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Written by Madeline Delanni
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 One of the major advantages of being self-employed or having your own home based business is that there are many allowable deductions that you can claim against your tax obligations to the federal government. These can all be found, itemized, on the website of the Internal Revenue Service (IRS).
What is important is to make sure you document all your business-related expenses and to have them documented properly.
Since a lot of small businesses get audited, and the rate is rising dramatically in recent years, keeping in mind the following top 10 home business tax deductions may help you avoid paying additional taxes and go through the audit process quickly and confidently.
Home Office Space – If you are devoting part of your home exclusively for the use of your business operations, you can allocate a certain percentage of the total area of your home and deduct it from your taxable income as office space. The IRS allows specific calculations for the allowable deduction. There are businesses, however, that require the actual acquisition prior to using it as a business office. Make sure to check the applicable regulations for your industry before operating the business to avoid disqualification from claiming the deduction. If audited, the examiner will want to see a diagram of your home/office space and square footage allocated.
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Written by Madeline Delanni
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My after-tax income from my small business is greatly reduced by the incomes taxes I pay each year. A friend of mine told me I could reduce the amount of taxes I owe by shifting my income elsewhere. Is that true?
Answer:
Generally, you can reduce the amount of taxes you pay by shifting the income from your business from yourself to family members who are in a lower income tax bracket. For instance, instead of paying yourself the usual salary, you could employ a family member who is in a lower tax bracket and pay him or her part of the salary you would receive for service performed for the business. The family member must perform services for your business and the compensation you pay that family member must be reasonable. Therefore, paying your son $100,000 per year to change the cartridges in your copier and empty the trash each day would not be reasonable compensation in the eyes of the Internal Revenue Service.
Employing family members is just one method of shifting income to reduce your tax burden. Talk to your tax and financial professional about this and other methods, such as gifting assets and designating a beneficiary to receive your insurance policies and/or retirement assets instead of withdrawing the amounts during your lifetime.
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