Accounting for a home business is little different to the accounting practices that you would need to adhere to if you based your business in premises away from your home.

You would certainly have different expenses to be recorded but you would still need to keep a set of up-to-date accounts. One of the things that would change for example would be the outgoing expenses. The amount of rent that you pay would be based on the dedicated area of your home used solely for your business instead of your rental premises.

Today, as there are so many home based businesses claiming both legitimate expenses and ‘manufactured’ expenses as a tax deduction, you would need to prove to the Taxation office (or IRS if you are based in the US) the area of your home dedicated to the space of your home occupied solely for business purposes.

Once you know the percentage of your home your new home based business occupies, you would then be able to legitimately claim that percentage off your income tax return. You would also be able to claim this percentage off your council and water rates.

Whatever claim you make on your home business tax return will have to be substantiated in your accounts.

So if you are going to claim a deduction as a legitimate business expense on your tax return then you will need to have an area of your home clearly mapped out as being your business office space. Accounting in a home based business can be difficult if you only use the kitchen table (as an example of office space) because that area of your home is also used for other purposes.

If you are a trade contracting business and have a shed down the back then this does make proving your expenses much simpler because it would be more likely to be a dedicated area from which you conduct your business affairs. If this is the case, then it could also be a good idea to have a dedicated telephone, fax machine and computer in the shed because these would then be seen to be for your business only.  Proving these expenses as legitimate outgoing costs every month is much because if you get audited then you will have the paperwork to show these costs as legitimate expenses.

If you don’t have a dedicated computer then the IRS or ATO could determine the computer usage to be more family oriented than business orientated and disallow any claim for new printer cartridges or maintenance and repair costs.

Accounting for a home business simply needs to be able to prove a business expense incurred as a legitimate business cost, compared to what is a family expense.