When it comes to running a home based or small business, you will run into a number of challenges. One of the biggest ones revolves around tax law and home business deductions. As a general rule, you can only take a deduction for your home business if you use the item exclusively for your business. In fact, a common problem for many small business owners when they are audited is that they cannot demonstrate clearly what their business assets are versus their personal assets.
What Difference It Makes
In the IRS’s eyes, it makes an enormous difference whether your assets are for your business or personal use. Most of the time, the IRS will consider any item that is ambiguous to be a personal item. In other words, you can’t get any deductions, and if you have claimed any deductions on that item, you may have to pay additional fees and penalties for past years you’ve claimed the item.
The use of the item is the primary method for determining whether it is a business or personal asset. However, it also has to be proven. One of the first steps in demonstrating how an item is used is to have clear documentation stating that it is a business asset or a personal asset. It is important that you do not lie as it will be corroborated, but if you do use something as a business item but do not claim it as such in your business activities, then you may have a hard time convincing the IRS.
The Best Way to Keep Track of These Things
Since it can make such a huge difference, it’s important that you take certain inventory control measures to protect yourself and your business’s assets. You could do this by hand or you could use software for inventory control. In fact, investing in a program is one of the best choices you can make. It can count as part of your business records. While pen and paper records may also count as business records, they are more difficult to update. It is also more difficult to transmit the files online.
Asset Panda is one of the best programs you can use. The software for inventory control is easy to use and intuitive. You can set everything up within a matter of hours to protect your business and separate out your business and personal assets. The other benefit to the program is that it allows for the natural development and transformation of your equipment or an item. After all, you might purchase a printer, claim it on your taxes in a number of capacities for a few years, and then decide that you need a new printer. You can then start using the old printer for personal use, but you must remember to remove it from your tax schedule and deductions at the end of the year. With just about any other method, you would have to remember all this, but with a good program you can go in, mark the item as inactive, and then remove it from your taxes as soon as you realize you’re not going to use it for business.
Remember that you need to be scrupulously detailed when it’s time to take deductions. You need to take advantage of these, and the simplest way to accomplish this is to keep your business assets as separated from your personal assets as possible. If you are running a home based or small business, then you should keep the items in another room or office if possible. Don’t loan it out unless you keep it on the books and record the use. If you are in doubt as to whether you can truly claim an asset for your business, then you don’t risk it without consulting with an accountant or tax attorney.