Schedule C Tax Tips:  Are You Letting These 4 Myths Stop You From Taking the Home Office Deduction?

Are you afraid to take advantage of the home office deduction?

Perhaps you are the victim of one or more of these common tax myths.

Unfortunately, many self-employed folks shy away from taking the home office

deductions for at least one of the following four reasons.

1. Fear of an IRS audit. There’s been a rumor going around

for years that the home office deduction increases the

likelihood of an audit. I would love to know who started

that rumor so I could give him a piece of my mind. For now,

I’ll just be thankful that you are reading this article so

I can tell you: don’t believe it! There is no basis for it.

Treat the home office deduction like any other legitimate

business expense: if you are entitled to take, by all

means, take it.

2. Frustration over the record keeping requirements.

Obviously, there are some numbers that must be compiled to

take the home office deduction. For homeowners, they

include the following: mortgage interest, real estate

taxes, homeowner’s insurance, utilities (gas, electricity,

water, trash removal, etc.) and repairs. The first two are

usually reported to you on your lender’s annual Form 1098

statement. The utilities are easy to calculate by simply

adding together your twelve monthly bills for each service

provider; if you don’t have those bills, the amounts are

just a phone call away to your friendly utility company.

And home repairs are easily found by looking through your

checkbook register and/or monthly credit card statements.

For renters, there’s usually fewer numbers to crunch: the

rent amount is the main figure, and I’m sure you know that

without even looking it up. You also need any renter’s

insurance or utilities you paid.

3.The belief that it’s not worth it. When you consider that

there is likely hundreds or even thousands of dollars in

tax savings at stake, don’t you think this is time well

spent? If it takes you an hour to put this information

together, and you save $500, where else can you make that

much money in that amount of time?

Sure, I know how much some people despise paperwork and

number crunching. Maybe you prefer not to touch a

calculator with a 10-foot pole. If that’s the case, hire an

accountant to do your return and the extra tax savings from

this deduction alone will likely more than cover the tax

preparation fee.

4. A misunderstanding of the tax benefits. Have you ever

heard a person say that he’s not taking the home office

deduction because he’s already deducting mortgage interest

and property taxes on Schedule A? Well, the next time you

see your friend, dazzle him with this tax strategy wisdom:

If you take the home office deduction, you not only reduce

your income tax, but you are also reducing your

self-employment (SE) tax. This is because the home office

deduction reduces your Schedule C profit. For every $1,000

of home office expense, you are losing about $150 in SE tax

savings.

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Looking for more small business tax tips? For a free copy

of the 25-page Special Report “How To Instantly Double Your

Deductions”, visit http://www.yousaveontaxes.com . Wayne M.

Davies is author of 3 ebooks on tax reduction strategies

for small business owners and the self-employed.

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3. Tax Tips for Self-Employed, Small Business Owners

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