Establishing your own business has tax advantages. Once you have a plan and a named business, you can declare it as a “sole proprietorship” on your income tax and start taking deductions for all those expenses. The biggest deduction will come from establishing your home ofﬁce as your principle, regular, and exclusive place of business. What does that mean? Well, basically, no more writing at one end of the dining room table and then shoving the papers out of the way to serve dinner. You must have a clearly deﬁned space in which you conduct all the activities associated with your business—writing, researching, editing, advertising, shipping.
It does not have to be a large space. You can ﬁt an ofﬁce into a large closet, a cubbyhole under the stairs, in the basement or the attic, or into a section of a room that is clearly separated from all other activities there. It simply must be used for your business and for nothing else. You’ll need a desk, a ﬁling cabinet, and—most important—a place to keep everything separate from the other parts of your life.
Now you have a place of business. Measure the space in square feet, determine the square footage of your entire house or apartment, and then ﬁgure out the percentage of the residence that is exclusively used for business. (A 10’ x 12’ ofﬁce in a 1500 square foot house = 8% devoted to business use.) That percentage now applies to all of your housing expenses that affect the entire space—heating and lighting bills, rent or mortgage interest, insurance, homeowner association fees, security system, and termite protection are all common expenses. You can’t deduct painting the living room if you use the back bedroom as your ofﬁce, but you can deduct 8% of the cost of a new roof, since that applies to the entire structure.
Read more in Chapter 2 of "The Second Mouse Gets the Cheese."