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Looking to start or have already opened a home-based microgym? Navigating tax season can be, well, a handful. So, we're going to make sure that you are heading in the right direction with yours when it comes to tax deductions for home-based microgym businesses. Shall we?
Small business owners have an enormous amount of pressure associated with keeping their business running smoothly. Keeping up with the rules and regulations imposed by the United States IRS is often low on the priority list. However, overlooking the most minor details regarding taxes as a business owner can be inadvertently and unintentionally detrimental to the bottom line.
There are many deductions which small business owners should be aware of, and specifically for home-based microgym owners. Many microgym owners may be unaware they can utilize costs from their very own home as it applies to the purposes of running their gym. The home office deduction is designed to allow taxpayers such as home-based microgym owners to recognize the costs of doing business from their very own homes.
If you're thinking of opening a gym within your home and joining the home microgym movement, then there are some details and nuances to the home office deduction you will want to keep in mind. Firstly, you must make sure that you qualify to take the home office deduction. The IRS outlines two basic requirements to be eligible for the home office deduction: first is regular and exclusive use, and the second is that your home (or space within the home) must be the principal place of business.
Regular and exclusive use means that the home or portion of the house (such as a garage or additional attached or detached property) is used exclusively for your business. That would be any room or space used for your microgym or home gym small business for our purposes. Principal place of business provision must be satisfied by proving that the primary site of business is your home.
You can still conduct portions of your microgym business outside of the home, but it must be proved that the majority of business conducted is done within your home. This should not be difficult to prove for home gym and microgym owners, primarily if sessions and classes are held within your home. But being able to conduct portions of your business outside of the home gym is good news for those who host a weekly class or two at the local park!
For more on requirements to claim the home office deduction check out this page!
Once it has been determined that requirements have been met to qualify for the home office deduction for your gym, you can then identify which expenses can be deducted. There are two methods that you can use to determine your deductions. The first (and easiest) way is the simplified method. With this method, you are simply allowed a standard deduction of $5 per square foot up to 300 square feet. This method does not allow for home depreciation, but you also do not have to consider recapture in later years. Check out this page for more details on the simplified method. Just keep in mind it may leave some deductions on the table.
The regular method is more complicated and requires substantiation of expenses and allocating a portion of them for business use. This method is more burdensome but may allow for more than the standard home office deduction. This may all sound like Greek to many home-based microgym owners, so be sure to consult a tax professional when it comes time to file taxes.
The types of expenses which are allowable may be more generous than many small business owners realize. For a comprehensive list of expenses allowed to be deducted, check out this publication. In short, you will be able to deduct home expenses such as utilities, internet, phone costs, insurance, security systems, etc. This is all, of course, in addition to traditional business costs such as depreciating or expensing your equipment, costs for contract labor, and other various business costs that may be more obvious for gym owners.
There are many considerations when filing taxes as a small business owner, and the home office deduction for home microgym owners can be a great catch. However, it is always wise to consult a CPA or tax advisor. In addition to the home office deduction, you will want to ask about the Qualified Business Income (QBI) deduction. This is essentially a 20% deduction based on the net income of your business, though potentially irrelevant if you're taking a loss the first couple of years. Be sure that your tax advisor is utilizing this deduction. The calculation can be complicated based on your specific tax return, but this is another deduction you don't want to miss out on!
Overall, you might be rocking the microgym world, but don't pay more than you need to in taxes because you're too busy to stay up to date with deductions and tax breaks available to you. Take the time to do this right, as you will discover that knowing the tax deductions for home-based microgyms is time well spent.
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Be sure to check out our blog post on 3 Epic Blogging Hacks For Fitness Pros, too.