April 15, 2000 Is Your Home Business Ready For Tax Season 2000?

Tax season is over and now what do you do. Do you just wait until next tax season to prepare your home business taxes? If you're wise, you started in January preparing for 1999 tax season. Here are some things you might want to do to make sure you're ready for April 15, 2000.

Now is the time to keep track of all those expenses you incur while conducting your business at home. The types of expenses that you can use to figure your deduction depends on:

Whether the expense is direct, indirect, or unrelated, and

The percentage of your home that is used for business.

Direct expenses are those expenses only for the business part of your home. This would include any repairs or painting only in the area used for business. Direct expenses are usually fully deductible, but have a deduction limit. Indirect expenses are those expenses for running the entire home. These would be your home insurance, utilities, and general repairs which are deductible based on the percentage of your home used for business. Unrelated expenses are only for the parts of your home not used for your business. This could be lawn care or painting a room not used for business. Unrelated expenses are not deductible.

Here are a list of some of the expenses you should be keeping a record of throughout the year.

Advertising
Bad debts for sales or services
Car and truck expenses (mileage log)
Commissions and fees
Depletion
Depreciation and section 179 expense deduction
Employee benefit programs
Insurance (other than health)
Real estate taxes
Interest: Mortgage (paid to banks etc.) and Other
Legal and professional services
Office expenses
Pension and profit-sharing plans
Rent or lease: Vehicles, machinery, and equipment
Repairs and maintenance (include labor, supplies, and other items that do not add to the value or increase life of property)
Supplies
Taxes and licenses
Travel, meals, and entertainment
Utilities
Wages (less employment credits)

You don't have to use a particular method of record keeping, but you must keep records that provide the information needed to figure your deductions for the business use of your home. You should keep canceled checks, receipts, and other evidence of expenses you paid.

For IRS purposes your records must show the following information:

The part of your home you use for business,
That you use the part in (1) exclusively and regularly for business as either your principal place of business or as the place where you meet or deal with clients or customers in the normal course of your business.
The depreciation and expenses for the business part.

You must keep your records for as long as they are important for any tax law. This is usually the later of the following dates.

3 years from the return due date or the date filed.
2 years from the date the tax was paid.

Make sure you pick up a copy of IRS Publication 587, Business Use of Your Home. This publication gives you all the information you need to know about using your home as your principal place of business. Also check out the IRS website at www.irs.ustreas.gov.