A home based business can be a great way to start small, minimize costs and save on taxes. However there are many pitfalls to having home based business if you are not careful about how you conduct your business. The IRS can be very picky about home based businesses and they often audit them simply because of a small error on the owner’s part.
Audit for Home Office Deduction
The main part you want to worry about when conducting a home based business is having a legitimate business in the eyes of the IRS. This simple problem has resulted in many audits and countless headaches for home based business owners. If the IRS does not view your business as something that the IRS has defined as a business you are going to run into trouble when you begin deducting expenses on your return.
Questions to Ask Yourself
The problem is that many people don’t read what the IRS has defined as a business. Some questions you need to ask yourself are:
Have you had success with this type of business in the past?
How much effort are you putting into your business to make it successful?
Have you made a profit?
Are you conducting your business in a way that a business should be conducted?
If your answers don’t comply with the IRS then they will label your home based business as a hobby and audit you for taking deductions that only businesses are able to take advantage of.