Home business tax deduction for self-employed

Those who are self-employed or are planning to start a business from their home should make full use of the provisions made under the different home business tax deduction heads. These deductions include:

Home Office: A home office is that part of the house, which you use solely for your business functions. You can benefit from the home office deduction if you use this office regularly and exclusively for business. Indirect expenses and depreciation too can be deducted.

Car: If you use a car to carry out your business then you can deduct the business cost of the car. You can also deduct the operating and maintaining expenses of the car. The deduction can be based on actual costs or the IRS mileage rate, whichever is more beneficial to you.

Personal assets: You can claim a deduction on personal assets, like computers, that you use in running your business. You, however, have to qualify the percentage of use.

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Alternative Minimum tax and Itemized deductions

5. Alternative Minimum Tax: Alternative minimum tax is applicable if an individual s taxable revenue is more than a predefined amount. In that case, the individual would otherwise pay negligible tax now has to shell out a certain amount, which lowers the advantages of certain deductions and credits.

6. Itemized Deductions: The alternative to the standard deduction is itemized deductions. For the year 2004, the major items included in itemized deductions were:

i) State and local income and property taxes
ii) Donations made to charitable organizations
iii) Employee transference expenses
iv) Medical expenses incurred
v) Casualty losses
vi) Interest paid on mortgage

However, the individual can either avail standard deduction or itemized deduction.

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