Personal Expenses vs. Business Expenses for your Home Business
Personal Expenses or Business Expenses (from IRS website)
Most taxpayers with home-based businesses accurately report their income and expenses, while still enjoying the benefits that a home-based business can offer.
However, some unscrupulous promoters advise taxpayers incorrectly that they can operate any type of unprofitable “business” out of their home and claim personal expenses as business expenses. Taxpayers cannot transform nondeductible personal living expenses into deductible business expenses, regardless of how convincing the information in the promoter’s marketing materials may seem.
These are generally not deductible as business expenses:
· Deducting all or most of the cost and operation of a personal residence. For example, placing a calendar, desk, file cabinet, telephone or other business item in each room does not increase the amount that can be deducted.
· Paying children a salary for answering telephones or washing cars.
· Deducting education expenses from salaries paid to children wrongfully claimed as employees.
· Deducting excessive car and truck expenses when the vehicle was used for both personal and business use.
· Deducting personal furniture, home entertainment equipment or children’s toys.
· Deducting personal travel, meals and entertainment under the guise that everyone you encounter is a potential client.
Taxpayers should also be aware of depreciation recapture rules when assets are later sold.