Claiming a Home Office for your Online Business

You will need to file your taxes even if the transactions of your business are largely offline, partly online or completely online. When it comes to tax season, you're in the same situation with other types of businesses. You are still obligated by the IRS to declare all of your income, file your tax return and pay your taxes and other corresponding expenses. It's a good thing though that many tax benefits and even loopholes that relate to traditional business can also be used in your online endeavors. Essentially, identifying what loopholes and exceptions that applies to your company is sometimes the tricky part or else, you will run into an IRS trouble.

One primary tax break that online entrepreneurs can use is having a home office. There is a big chance that business owners can qualify for significant tax deductions as most of the time, online businesses are done at home. Business owners just have to take note that using the house regularly and exclusively for business purposes will make them avail of the applicable deductions. A dining room used as an office during the day won't qualify under this type of tax exemption.

Any given space or room must be primarily used for business endeavors such as client meetings and daily operations, for it to qualify as a home office. Although you are given leeway in dividing the time spent for each space, whether business or personal, you might want to keep it simple. Claiming that a room is utilized for business operations 100% of the time instead of 75%-25% for business and personal uses, respectively, is a better alternative. This way you won't attract IRS problems into your doorstep.

You should also prove to the IRS that your home office is your principal place for business. Basically, since online businesses are done at home, business owners will have no problems meeting this stipulation. The significance of this requirement lies on the fact that the IRS has to ensure that business-related activities are done in the confines of the home office, and not somewhere else.

Meeting these two significant requirements for a home office will certainly translate to huge savings on your home and business tax obligations. These include expenses like rent or mortgage payments, insurance, utility bills and property taxes. Bear in mind, however, that you cannot be exempted on the entire amount of your rent as deductions related to a home office are done using percentages. To illustrate, if you use 25% of your home as home office and the monthly mortgage payment for that property is $10,000, you can claim $250 as exemption and in 12 months time, you can save up to $3,000. Just remember to have all your online business records so if questions arise, you won't have problems in backing up your claims.

There are also restrictions when it comes to your online business tax deductions. For instance, you can't accrue so many deductions that you record a net loss for a given tax year. Hypothetically, if your online ventures created more or less $50,000 in revenue but you could technically claim to have had $60,000 worth in deductions for the same year, then you're not allowed to claim or file a net loss equaling that $10,000 difference. What you can do however, is report and declare a net gain of zero.

 Darrin T. Mish is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He teaches attorneys, CPAs and Enrolled Agents in the finer aspects of IRS representation all around the United States. He can be reached at his website at http://www.getIRShelp.com

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