Many people start their own business out of their home. For some, operating out the home is only temporary and they move on to an office building in time. However, many businesses continue to use the home as its main base. The contractor, freelancer, pet groomer, or hair stylist may decide that dedicating a portion of their home for the business is more cost-effective for them than leasing office space. For those who do decide to continue using their home for business purposes, income tax time can be a bit confusing. You may wonder just what your tax liability should look like and what is legally deductible. That's why securing accounting and tax services is an important step for your home-based business. Here are 3 ways an accounting and tax representative will benefit you.
Saves you money:
Unless you're a tax expert, you probably don't know all the ins and outs of taxes. Tax deductions for businesses out of the home are different from those who operate out of a building. When leasing a building, the tax deduction is more straightforward because you have the lease payment, utilities, insurance, and so on. However, with a home-based office, it's quite different. You can deduct the space you work out of even if it is your home, but there are rules and laws concerning it. You have to be careful not to deduct more than you're allowed but be sure you get the full deduction. Some people err on the side of not taking it all because they don't think they can, while others err on the side of taking too much of a deduction and raising a red flag to the IRS. Either way is not helpful for your business. An accounting and tax service representative will know the laws and rules of the home-based deductions and can save you money.
While many business owners love what they do, they may not love the financial paperwork of owning a business. Aside from the regular invoicing, accounts payable, accounts receivable, and handling of sales receipts, there is the financial planning and budgeting that requires a whole other set of skills. This is where an accountant can be a benefit. An accounting and tax service does more than just file your income taxes. They are experienced with financial data, budget analysis, and market trends. This means they can help businesses with budgeting and forecasting. Having a financial analyst can help your business increase its efficiency.
Saves you time:
Whether your business needs full accounting services or end-of-the-year income tax preparation, outsourcing saves you time. The time saved can be spent focusing on other areas of your business. Accounting and tax consultants provide a whole host of services. You may select the level of service you want and customize it to your specific business. Some of the tasks they do include:
Accounting system set-up
Operating a business out of your home is a rewarding job. You have the benefits of setting your own schedule and doing things the way you like. However, there are tax and accounting challenges. Securing an accounting and tax services representative helps minimize those challenges. Save valuable time, pocket more of your hard-earned money, and plan your future finances with assurance when you secure the services of accountants and tax services.
At MSM Accounting and Tax Services, LLC, we have several years of experience helping clients with tax and accounting management. Our friendly staff is standing by to assist you. Connect with us today for more information about our services for home-based businesses.
Buy or rent? Sometimes the choice is obvious, depending on the cost of living and of real estate in your area. Other times, it's less straightforward.
One of the things to take into account is taxes. If you own your home then you may be able to take advantage of something called the Home Mortgage Interest Deduction. Whether this is an advantage for you depends on certain factors.
First of all, you can only take the deduction if you have "secured debt" on a "qualified home." Secured debt means that your ownership is security for the debt - which is the case with all standard mortgages, but may not be the case with certain kinds of home equity loan. Wraparound mortgages don't qualify. The qualified home must be your main home or second home. If you rent out your second home year round, it doesn't qualify. If you have more than one second home (and note that boats used as a home count), you can only deduct interest on one.
So, are there reasons to not take the deduction? It might seem that any deduction off of your income is a good thing, but the home mortgage interest deduction has some complexities.
1. You need to itemize deductions. You should calculate both itemized and non-itemized deductions and see which gives you a better deal. For most homeowners it does, but depending on your mortgage payments and property tax, it may be cheaper to take the standard deduction. Generally, it is cheaper to take the standard deduction if your mortgage or home equity loan is for a lower amount.
2. If you run a home business, it is complicated. You need to work out what the part of your home you use for the business is worth and deduct that, then claim that value on your Schedule C or similar. This can all end up costing more in tax advice than you save in deductions (also, claiming a home office deduction can greatly increase the chance of your business being audited). Note, too, that you can only claim a home office deduction if you use part of your home "exclusively" for the business - this normally means having an office with a door that closes, which is used only, or at least mostly for work.
3. The interest is only deductible for the first $1 million of a mortgage or $100,000 of a home equity loan. If your mortgage is a lot over that it can become questionable whether it is worth it.
4. If you file taxes separately from your spouse, then you each get 50% of the deduction. Unless only one of you is on the mortgage, in which case...the one on the mortgage still only gets 50%, and the other gets nothing. (Lesson: If you are married, add your spouse to the mortgage). This does not apply to unmarried couples who have to file separately.
5. If you rent out part of your home, you can still take the full deduction unless you have more than one tenant or you are renting out a studio or in-law suite (with separate kitchen and bathroom). If your tenant runs a business, though, then you lose the value of that part of your home. Again, this can make things extremely complicated.
However, for the vast majority of homeowners, taking the home mortgage interest deduction makes sense. You can also choose not to take it - which sometimes makes sense if you are running a business - but for the most part it is a no-brainer to take it. When deciding whether to buy or rent, you should cost out what the deduction will save you when comparing rents and mortgage payments. It can make the difference.
If you aren't sure whether you should or not, then you should talk to MSM Accounting and Tax Services, especially if you run a business or have three or more homes. A qualified accountant can help you work out whether - and how - to take the deduction.