FORTUNE Small Business:

Write-offs for your home business

Ask FSB checks in with tax experts for details on what home-businesses owners can deduct.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)

Get small-business intelligence from the experts. Here's a chance for YOU to ask your pressing small-business questions, and FSB editors will help you get answers from the appropriate experts.
Your name:
* Your e-mail address:
* Your city:
* Your state:
* Your daytime phone #:
* Your questions:

(FORTUNE Small Business) -- Dear FSB: I have a small Web design business. How do I write off supplies (especially computers, software and electricity) for the business knowing that I also run my home items on the same computer? What percentage can I write off?

- Bill G., Fountain Valley, Calif.

Dear Bill: At some point nearly everyone running a home-based business asks the same question - how do I mark where work ends and life begins, and what does that mean come tax time?

"There's two ways to look at it," says Grafton "Cap" Willey, past chair of the National Small Business Association and a senior partner with Tofias PC, a New England accounting and professional services firm. "There's the technically correct way, and the practical way."

The technically correct way is for you to log exactly the time spent using the computer - and whatever other equipment you use - for business and for pleasure.

But if the thought of whipping out a pencil every time you surf over to check out the latest on between now and retirement has you running back to 9-to-5-land, don't worry. Your record doesn't have to be that exact.

"The reality is most small businesses can't be that detailed or focused, so the IRS takes a more reasonable approach," Willey says - though it's always possible that an IRS auditor in a cranky mood could decide to quibble.

The reasonable way is to estimate how much you use the computer for work (say 50% of the time) - or, in the case of the electric bill, what percentage of your home's square footage is used for the business - and deduct accordingly.

Paul Stappas, a small business consultant for more than 30 years and founder of Bookkeeping Administration Management in Neshanic Station, N.J., agreed.

He explains that you can deduct electricity, gas, and other expenses also used to run your business based on the percentage of your home that is used for an office.

"For example, if the office comprises 12% of your home, then you can deduct 12% of the house expenses, including mortgage interest, house cleaning, repairs, home insurance, etc," Stappas says. "In addition, you could depreciate your office space. Bear in mind that to qualify for such deductions, you must use a specific area of your home exclusively for your trade or business." To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Royal wedding: How much will it cost? Meghan Markle's wedding to Prince Harry could cost millions once security is included in the bill. See how the costs break down. More
Robot co-workers? 7 cool technologies changing the way we work Experts believe humans and machines will work much more closely together. More