The ABCs of Determining the Square Footage of Your Home Office for Tax Purposes
Small business owners, who have a designated office space in which to operate their business, are eligible to claim a portion of the mortgage and other home expenses on their taxes. However, you can only claim this deduction if you know the square footage of your home which is designated as your office space.
How to Determine Your Home Office Square Footage
In order to determine the percentage you can deduct from your mortgage and other home expenses, simply divide the square footage of your home office space against the total square footage of your home. If your office space is 135 square feet, and your house is 1,400 square feet, this means that you can deduct a total of 9% of the cost of your mortgage and utilities. Using this simplified equation is the best way to get an accurate sense of your percentage.
If the room you use for your home office is identical in size to your other rooms, you can use another method to determine your percentage. Simply divide the number of rooms you use for your business by the total amount of rooms in your house.
Currently, the IRS allows $5 per square foot. However, be aware that you can only claim up to 300 square feet of your home for this purpose.
Home Office Advantage
Qualifying for this deduction can be well worth it as the payoff is significant. However, you cannot use the home office for any other purpose.
If you are thinking about the home office space deduction, please consider it carefully.
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Should You Pay Your Taxes with Your Credit Card?
While you should have the necessary funds in a traditional bank account to pay your tax liabilities, this is not always an option. You cannot use a debit card to pay your taxes, but credit cards are accepted. The drawback of using a credit card is that you have to pay back the credit card company plus interest; this ultimately results in a higher cost.
Personal Credit Card Interest Not Tax Deductible
Interest accrued on personal credit cards for tax payment purposes is not tax deductible. The only credit card interest that is tax deductible is when the expense is for a business purpose, and this must be documented. Obtain a statement from your credit card company for tax purposes to determine the actual amount of business expense interest that was paid.
Small Tax Debt
Now, if you only owe a small amount of taxes, using a credit card is okay. However, at the same time, you should only use the credit card if you will be able to pay the balance off in-full at statement time, or before the bill even comes.
Use Only Zero Interest Accounts
Only pay your taxes with a credit card if it is a zero interest account. Otherwise, you end up paying more than you owed to begin with. This doesn’t make much sense, but for some individuals, it is the only option.
Closing Thoughts
Only use your credit card to pay your taxes if you have no other choice. If you end up having to make payments to the IRS and a credit card, you’re really getting hit with a double whammy. You end up paying one and half times (minimally) your original debt owed.
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Don’t Be Fooled by These 5 Business Tax Myths
Tax codes are not always cut and dry. Tax code language tends to be rather confusing and leads to many misunderstandings. These misunderstandings lead to mistakes when filing business taxes.
Cash Paychecks
If you pay yourself in “company cash” rather than recording a check, you still have to pay taxes on that income. The IRS will issue an audit if it notices that you didn’t have income reported but have a large savings account balance or luxurious assets.
Extensions
Extensions are for the filing of your tax return only. Extensions on estimated tax payments are not given. This is often misinterpreted and leads to business owners having to pay fees and penalties.
Deadlines
Typically, the deadline for filing your business tax return is April 15th. Given the observation of Emancipation Day in 2016, the deadline for all taxpayers is April 18th. Hand deliver the return to the post office and have it postmarked in front of you to ensure it is not postmarked late if you plan to paper file.
Filing Statuses
Business owners that are married, and individuals as well, often file a joint return. This is not always the best idea. Have your tax preparer complete returns for joint filing status and married filing separately. Determine which has the best income for your situation and file that way.
Deductions
Deductions for meals and entertainment expenses are limited to 50-percent off the amount actually spent. A detailed ledger of expenses and the receipts for them must be kept. The location of the meal, the cost and reason for the meal must be listed.
Much confusion exists about tax laws. Clear, concise explanations keep taxpayers “in-the-loop” and prevent mistakes when filing.
Image credit: Accu-Tax Financial Services
