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Good News for Home-Based Business: IRS Simplifies Home Office Deduction

January 31st, 2013 ::

By Karen Axelton

If you are a home-based business owner but have never claimed the home office tax deduction because you don’t want to deal with the complex reporting and calculation that’s required—or because you’re afraid making a mistake could trigger an IRS audit—you can breathe a little easier this April. That’s because the IRS has announced a simplified, optional method for claiming the home office deduction.

The new optional deduction allows taxpayers to claim $5 per square foot of home office space up to a maximum of 300 square feet, or $1,500 per year. Currently, small businesses and others claiming a home office deduction have to complete Form 8829, a 43-line form that includes complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers who want to claim the optional deduction instead will complete a much simpler form.

The IRS estimates the change will affect more than 3.4 million taxpayers (the number who claimed the home office deduction in tax year 2010, the most recent year for which the agency has data) and will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours per year.

Here are a few things to be aware of in deciding whether you want to claim the traditional home office deduction or the optional simplified verson:

  • Homeowners using the simplified option cannot depreciate the portion of their home used for business. However, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions do not have to be allocated between personal and business use, which the traditional method requires.
  • Since the optional deduction has a cap of $1,500, if your home office is significantly bigger than 300 square feet or if you have extremely high utility bills or other costs, you may want to stick with the traditional method of claiming deductions.
  • No matter which method you use, you still have to meet the current restrictions regarding the home office deduction. For example, the home office must still be used regularly and exclusively for business, not for personal use.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. For more details on the new option, visit the IRS website to read Revenue Procedure 2013-13.

Image by Flickr user james.thompson (Creative Commons)

Web.com Small Business Toolkit: StartupNation Home-Based 100 Competition (Contest)

September 24th, 2012 ::

StartupNation Home-Based 100 Competition

According to the U.S. Bureau of Labor Statistics, there are more than 18 million home-based businesses in the United States. To celebrate and honor this driving force, the fifth annual StartupNation Home-Based 100 Competition is now open and accepting entries. The Competition is a ranking of outstanding home businesses and the amazing people behind them. Entries in the 2012 Home-Based 100 Competition are accepted until the end of October. The 100 winners will be published in mid-December 2012. Businesses will be ranked in 10 categories including Most Innovative, Boomers Back in Business and Greenest Home-based Business.

Small Biz Resource Tip: Home-Based 100 Competition

September 19th, 2011 ::

Home-Based 100 Competition

If you know of a great home-based business or own one yourself, nominate or enter the Home-Based 100 Competition from Start-up Nation. Sponsored by AOL Tech Guru and Sam’s Club, the contest is looking for the top home-based businesses in the following categories: most innovative, greenest, yummiest, wackiest, most social media savvy and more. The deadline for entries is October 31, 2011, and contestants’ entries are posted on the site for viewer voting, so even just entering will get you tons of publicity. Winners will be announced in December.

The State of Home-Based Business

September 2nd, 2011 ::

By Rieva Lesonsky

Do you remember when “home-based business” was a term you had to define? When the idea of working from home was foreign to most people and entrepreneurs who did so were viewed with suspicion?

I do, and that’s why I’m so fascinated by the latest data from The U.S. Census Bureau about home-based business ownership. The Census Bureau’s 2007 Survey of Business Owners found, among other things:

Home-based businesses dominate: More than half (51.6 percent) of all businesses that responded to the survey were operated primarily from someone’s home.

Home-based businesses have small sales: Just 6.9 percent of home-based businesses that responded to the survey had $250,000 or more in annual receipts. In contrast, more than half (57.1 percent) of home-based businesses had annual sales of less than $25,000. Unfortunately, the Census doesn’t ask questions like whether these business owners have small sales because they don’t wish to grow any bigger, or whether they’re struggling to grow. I’d be curious to know.

Home-based businesses are employers: Nearly one-fourth (23.8 percent) of home-based businesses responding to the survey had employees. Although the majority (62.9 percent) did not, that’s still a surprisingly large number who are employers. This not only goes against the conventional wisdom that home-based entrepreneurs are soloists, but is also further evidence of home-based business’s acceptance.

Home-based business owners are more likely to be women: Businesses owned by women or by men and women were more likely to be home-based (58.2 percent and 58.1 percent, respectively). Slightly less than half of businesses owned by men (49.1 percent) were home-based.

Home-based business owners are less likely to be minorities: Most nonminority-owned businesses (54.4 percent) and businesses with both minority and nonminority owners (56.0 percent) were home-based. Among minorities, however, just 46.5 percent of firms were home-based.

As these statistics show, home-based business is no longer a rarity but a fact of life. In fact, I’m willing to bet it’s grown even more in the wake of the recession. I’d be interested to see current statistics to learn how many of the new entrepreneurs and “solopreneurs” created by the 2008 recession are running their businesses from home.

If you’re a home-based business owner, do these figures jibe with your own experience?

Image by Flickr user James Thompson (Creative Commons)



Has Your Business Outgrown Your Home Office?

December 3rd, 2010 ::

By Rieva Lesonsky

Running a business from home is a great option for many small business owners. It saves you money on commuting, parking and dry cleaning and can help you be more productive. But as your business grows, you’re eventually going to be faced with a decision: To stay at home, or not to stay? Ask yourself these questions to see if it’s time to consider looking for outside office space.

Is working from home hurting your image? Of course, you can meet clients at their offices or the local Starbucks, but at some point, this may become counterproductive. If not having an office of your own is making clients think less of you or causing you to lose out on opportunities, you may need to bite the bullet and look into a lease.

Are you running out of room? If your company ships products, stores supplies or otherwise needs a lot of space, a home office may eventually get too small. Unless you have the option of adding onto your home or building an office in the back yard, you may have no choice but to move out.

Do you need to hire employees? Many entrepreneurs who work from home do quite well using virtual employees or outsourcing to contractors. But if you need real, live employees to actually work in the same space as you, having them come into your home can seem like a violation of your personal space. Unless your home office has a separate entryway or is a separate building like a guest house, hiring employees is where many entrepreneurs draw the line.

Could you be more productive in an outside office? Some people are suited to working from home, and some aren’t. If you feel distracted or can’t focus at home, or if you feel isolated and need the stimulus of seeing other people besides the mail carrier, consider whether you might be more productive outside the home.

Don’t rush into anything. Before you make a big move, consider each issue and possible ways to work around it without leaving the home. For instance, if you only need meeting space once in a while, look into office suites solutions that let you rent space on an as-needed basis.

If you decide you do need to move out of the home, take your time to find the perfect space that solves the problems you’re facing at home. Write down everything that you need and enlist a commercial realtor to help you sort out your options.

Last, but not least, when choosing commercial space, take time to assess your business’s projected future growth plans. Look for a space that gives you room to grow—because moving out of the home is just one step in the continued success of your business.

Image by Flickr user Clint McManaman (Creative Commons)