What deductions are available for self employment or home businesses?

    Published: 06-16-2009
    Views: 10,446
    Goodman & Company Tax Director Art Auerbach lists the tax deductions a self-employed individual or home business can claim.

    Host: What deductions are available for self-employed or home businesses?

    Aurthur Auerbach: Deductions are covered under one particular section of the Internal Revenue Code; it's called the ordinary and necessary section. To have a deductible expense, the expense has to be ordinary and necessary for your business. Now, the obvious ones - electricity, everybody today has a computer unless you have got an unlimited supply of batteries you plug the computer in so there is electricity. Phones, we will deal with phones a little bit separately because a lot of folks today have given up on landlines and they only use a cell phone and the cell phone has some separate rules attached to it. But go under the premise that whatever is deductible has to be ordinary and necessary for your particular business because that's the start point in the Internal Revenue Code.

    Then some expenses have limitations on them. For example, business meals; generally, you can only deduct 50% of the cost of the business meal. If your spouse goes along and your spouse is not involved in your business you can't deduct that cost. It's not ordinary and necessary. Where is the necessity there? So just get form Schedule C on the 1040 and look at the expenses. The most obvious ones are all listed there. If they are not, turn the form over, there is a section on the back for miscellaneous so things like telephone, you might insert in the miscellaneous because there is no line separately for telephone expenses. But the basic deal is the expenses have to be specific to the business, they can't be personal expenses. They have to be ordinary and necessary for the course of running the business.