The Complete Tax Guide for E-commerce Retailers including Amazon and eBay Sellers: How Online Sellers Can Stay in Compliance with the IRS and State Tax Laws by Martha Maeda

Author:Martha Maeda
Language: eng
Format: epub
Tags: tax laws, balances, IRS, assets, liabilities, transactions, tax information, state taxes, online selling, compliance
Publisher: Atlantic Publishing
Published: 2012-01-15T00:00:00+00:00

CHAPTER 5: Business Use of Your Home

If you are operating your Internet sales business from your home, you could be eligible for a home-office tax deduction. If you rented or owned an office space or warehouse, your cost of doing business would include expenses, such as rent, utilities, taxes, telephone lines, maintenance, insurance, and security. The deduction for business use of your home allows you to deduct a certain amount from your business income to account for the fact that part of your home is really a business facility and the expenses for that part of your home are part of your cost of doing business. The IRS allows you to take deductions on the business portions of real estate, taxes, mortgage interest, rent, utilities, insurance, depreciation, painting, and repairs.

The home office deduction means a great deal to an online seller because it allows a significant reduction of taxable income. To qualify for the home-office deduction, you must use your home as your “principal place of business” or as a “place to meet or deal with your clients or customers in the normal course of your trade business.” You qualify if you operate your online sale business out of your house. The amount you can deduct will depend on how much of your home you are using for your business.

The strict and detailed rules for calculating the deduction are explained in IRS Publication 587: Business Use of Your Home (www.irs.gov/pub/irs-pdf/p587.pdf ). The first year you take this deduction, you have to do a considerable amount of extra work to prepare your taxes. The following years are much easier because you have established the basic facts, and you know what documents to keep on file and where to look for specific information. Tax preparation software takes you step-by-step through the process of calculating your deduction and does the math for you. You might want help from a tax accountant the first year to identify what you can deduct and establish the value of your home; you can follow the example of your first return to fill out future returns.

As with all tax matters, you will get the maximum allowable deduction only if you keep accurate records and file supporting receipts and documents. Receipts for maintenance and repairs, the purchase of replacement parts, utilities, HOA assessments, carpet cleaning, and pest control are all important because a portion of those costs can be deducted as business expenses. The IRS allows you to deduct more if your gross income is greater than your total business expenses than if you experience a business loss.

When selecting individuals for audit, the IRS is inclined to target taxpayers who take the home-office deduction because there are many opportunities for fabrication and abuse. You have nothing to worry about, however, if your deduction is legitimate, and you have hard evidence to back you up.

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