If Starbucks is your headquarters and you spend much or most of your time out and about, you may be part of a growing group of business owners who work on a mobile basis. A laptop, tablet, and Smartphone enable you to set up an office just about anywhere. Certainly, not having to pay office rent cuts your overhead substantially. Being mobile also gives you more flexibility in scheduling and running your business. But you still have costs for working on a mobile basis. Here are the tax rules you need to know.
Home office deduction
Even if you don’t spend all your time working from home, you may still qualify to treat a portion of your residence as a home office. This entitles you to deduct costs related to the home office, including rent (if you are a tenant), real estate taxes, mortgage interest, and depreciation (if you own your home), utilities, insurance, etc.
To claim this deduction, your home office must be your “principal place of business.” Usually, this means the place where you earn your money. However, the tax law lets you treat your home office as your principal place of business if you use it to do substantial administrative activities and you have no other fixed location. Thus, if you use your home office to schedule appointments, keep your books, order supplies, do research, and do other business activities, the home office can qualify as your principal place of business.
Caution: The space you call your home office must be used regularly and exclusively for business. Your kitchen won’t work as an office because you eat there.
Once you establish that your home office is your principal place of business, then any travel to and from the office for business purposes—to see a customer, prospect, or vendor, or go to an office supply company, the post office, or the bank—becomes a deductible business expense. If you use your personal car, truck, or van for business travel, you can write off the business portion of vehicle usage in one of two ways:
- Deduct your actual costs;
- Deduct business mileage based on an IRS-set rate. For 2011, the rate is 51¢ per mile for the first half of the year and 55.5¢ per mile for the second half of the year.
Either way, you can also deduct your parking and tolls. However, to claim any deduction you must keep a good record of your business driving. For each trip, note the mileage (odometer reading), the date, destination, and purpose of the trip.
Usually, you have to depreciate the cost of any item that is expected to last for more than one year. However, two tax rules in 2011—the Section 179 deduction (first-year expensing) and 100% bonus depreciation—effectively allow you to write off the cost of a technology item purchased this year.
Laptops and tablets. The cost can be written off in the year you buy the item and place it in service (i.e., start to use it for business).
Smartphones. Monthly service fees are fully deductible. As long as you use the phone primarily for business, then any personal use can be ignored for deduction purposes.
Apps. While many apps are free, you may want to buy certain apps to help you work on a mobile basis. For example, you may need an app to process credit card payments on the fly, or other apps that increase your business productivity.
Work with us and will make sure you’re getting all the deductions you’re entitled to. Remember, while you’re pounding away at your laptop at Starbucks, you can’t deduct your latte!