Extreme write-offs

When you work from home or own your business, you have a lot of opportunities to write things off. But make sure you follow the rules. I work out of an office in my home, and for the past 20 years, I've been videotaping wills for my clients.

I show those wills to the beneficiaries on a big-screen TV that I keep in my office. I use the TV exclusively for business, so the cost of the TV was 100% deductible when I bought it. Video: Extreme write-offs

What qualifies as a business expense?

To write off items as business deductions, your expenses must be:

• "Reasonable and customary," as defined by the courts and the IRS.

• Paid for or incurred during the tax year.

• Connected with the conduct of a trade or business.

The meaning of "reasonable and customary" depends on your specific trade or industry. Video: Taking a swing at the IRS

There's almost nothing that isn't deductible, under the right circumstances.

For example, when my kids were younger, I had T-shirts made up for them with "Ask my Dad" on the front and "How to Pay Zero Taxes" on the back.

These wouldn't be allowable as a clothing deduction, but they were fully deductible as advertising! Video: The weirdest write-off you've seen?

Let's figure out how to deduct your car.

You have two choices: You can take mileage, at 44.5 cents per business mile (48.5 cents for 2007), plus interest on the car loan, tolls and parking. Or you can figure out what percentage of your driving is for business, multiply that by your actual costs, including depreciation, and then add the full amount of business parking and tolls.

In either case, you'll need to keep track of both business and total miles. Video: What can Pam deduct?

If you're self-employed, the deduction goes on Schedule C. If you're an employee, you use Form 2106 and Schedule A.

The rules on home offices
More than 24 million people work from home either full or part time, according to Link Resources.

The number of people who work at home grew at a rate of 23% between 1990 and 2000. The Internet has made it easy. Video: Writing off your home office

To qualify for a home-office deduction, you must use an area of your home regularly and exclusively for business purposes, and you must meet any of the following conditions:

• You use the area exclusively to store inventory or product samples for your business.

• You use the space as your principal place of business, and the business generates revenue.

• You use the space to meet with clients, patients or customers.

To claim the home-office deduction, you must complete and file Form 8829 and base your deductions on the ratio of the square footage used for business versus the total square footage in your house.

For example, if you use a 20-by-10-foot room for business and have a 2,000 square-foot house, you're allowed to claim 10% of your qualifying expenses as home-office deductions.

Other deductions too many people miss

Educator Expenses. If you're a qualified educator, you can write off ­-- with an above-the-line deduction -- as much as $250 for materials you bought in 2006. That includes books, supplies and even computer equipment. You qualify if you're a kindergarten-garten-through-12th-grade teacher, an aide or instructor, or a school principal.

Note: Your 2006 tax forms were printed before this deduction was extended, so use line 23 of your Form 1040 to claim this deduction and write an "E" next to the line.

Student higher-education expenses. If your adjusted gross income in 2006 wasn't more than $65,000 (or $130,000 on a joint return), you can get an above-the-line deduction of as much as $4,000 for any higher-education expenses you paid.

Note: This deduction also isn't on your tax forms. Use line 35 of your Form 1040 and write in "T" to claim these expenses. How to: Deduct higher-education expenses

The list of things that may qualify as tax deductions can fill a book. In fact, my book "How to Pay Zero Taxes" details those deductions and explains how to qualify for them.

MSN and the Tax Corner are other sources of tax information and knowledge. One of our major objectives is to educate you so that you don't have to pay a single penny more in tax than the law requires.

Discover more tax deductions with the MSN Money Tax Deduction Finder.