You can incorporate your business with your family or your trusted friends as shareholders. An S corporation is a corporation that chooses to be taxed under subchapter S, Chapter 1 of the Internal Revenue Code or single taxation. They do not need to pay any federal income tax. Instead, they distribute their income or losses to their shareholders, who will then report this in their individual income tax return. So, in effect, the tax which the home business is supposed to be paying can be passed off to the individual shareholders of that business. This is something that cannot be done in single proprietorships.
Keep track of your vehicle usage. If you use your car for running errands or making sales calls that are related to the home based business, you can charge it as a business expense. You just need to record the number of miles as well as what the details of the trip is. The IRS allows you to deduct a certain amount per mile.
Keep track of materials and supplies that you use for your home based business. Many items that are necessary for you to run your business, from computers, printers, pens and even the paper clip you use for your documents are deductible from your revenues for tax purposes. Internet connection, and cellular and landline phone charges that you use for the business are deductible expenses as well. All local and long distance phone calls that are for business use can be deducted so a log of the called person and a note on the matter discussed should be kept for accounting purposes It is important for you to keep all receipts and record them.
You can donate some items to charity and have them deducted for tax purposes. A receipt from the charities should be kept as a proof of this contribution with the charity or you estimating the value of the donated item and indicating them on the receipt itself.
Your home office can be a deductible expense as well. However, there has to be a specific place that is designated to be for your home based business. It can be a room or a part of a room but it should be dedicated for the business alone and used as its principal place of business. It does not have to be walled or partitioned off, but it cannot be used for other household purposes except for when it is for day care business or as storage for business inventory. If you use different areas of the house for home based business purposes, they may not qualify for the deduction. Repairs and maintenance for that specific area can also be deductible as well as utilities such as gas, electric and insurance.
Whatever you save on these areas will go a long way in helping you grow your home based business or increase your profits that you can use for you and your family.