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Small Business Tips

The Secret Weapon for Small Business Tax Deductions

Marin Perez

We've talked a lot about can't-miss tax deductions for the self-employed but I wanted to highlight one that can lead to major savings. That's right, this is potentially the secret weapon for small business tax deductions.

The home office increases your mileage deduction

If you're reading this, you probably know how valuable the mileage deduction can be. You probably also know you can write off the business use of your home with the home office deduction. But you may not know that having a home office can greatly increase your mileage deduction and lead to even larger tax savings.

Without a home office, your first drive to your office and last drive home are considered commuting. The IRS clearly states that commuting is not deductible. But with a home office, those drives can be classified as business drives because you're driving between offices.

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How much does this add to your deduction?

Your increased tax deduction will vary but using a home office to maximize your business miles can lead to significant savings. The IRS lets you write off 58 cents per business mile in 2019, so those miles can quickly add up.

The average commute to work is 15 miles, one-way. Those 30 miles (back and forth) are normally not deductible. But with a qualifying home office, that's about $17 a day in tax savings. That's $87 a week, $348 a month or roughly $4,176 a year.

Keep in mind, those are tax savings on top of all your other business drives and in addition to what you can write off for the business use of your home. Even if your commute isn't that long, every deductible mile can be more tax savings ... and more money back in your pocket.

How to qualify for a home office

So, what do you have to do to have a qualifying home office? The main sticking points about your home office are:

  • Your home office must be used exclusively for business
  • You must use your home office on a regular basis
  • You must actually be in business

Your home office area has to be used solely for work purposes. If you have an office in your house that you also use for personal or recreational reasons, the IRS doesn't let you write that off.

We know a lot of you work from home and often use that space for various reasons. Remember, there's no size minimum for your home office: Your home office doesn't have to be a full office. You can segment a small part of your house to be used only for work and still qualify for the home office deduction.

The IRS hasn't defined "regular basis" but one court has found that 12 hours of use a week is enough. Finally, the IRS won't let you write off your home office if you're using it for a hobby, not a business. There are a few more specifics about the home office deduction you can read about here.

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