a. Measure square footage of your entire home

b. Measure square footage of your home office

c. Divide office's square footage by your home office's square footage

d. This number is your percentage..Apply this percentage to indirect expenses, like your mortgage taxes, utility bills, real estate taxes, and upkeep. So, you can deduct a percentage of home-related expenses based on percentage of space in your home that your home office takes up. So if your house is 5,000 square feet and your office is 500 square feet, you can deduct 10% off indirect expenses and home cost. Don't worry, direct expenses are still deducted in full. For example, don't use percentage on things such as a business phone line.

e. Find out home purchase price and add to that all home improvements

f. Find out value of land

g. Find out market value of your home.

REASONS HOME OFFICE DEDUCTIONS ARE SOMETIMES NOT WISE TO TAKE

Yes, taking a home office deduction sounds like a great idea, but remember there is a downside too. If you deduct your home office, your office may be considered business property. This means that you will need to pay taxes on amount business depreciated when you sell your house. Because of this, a home office deduction might not be profitable for you. You might save a few hundred dollars every year with home office deduction, but have to pay thousands of dollars when you sell house. Because of this, I recommend visiting a tax accountant before deducting a home office.

Another reason not to take home office deduction is because IRS might decide to audit your business when they see your home office deduction. Taking this deduction is like throwing a red flag in front of IRS, so it is up to you whether you want to take risk and deduct your home office.

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Tax Myth #4: "My tax situation is OK because my BLANK (fill in blank with a family member or other "good friend") takes care of my taxes."

There are various versions of this myth. Do any of these sound familiar? "My brother-in-law takes care of my taxes." "My uncle takes care of my taxes." "My college buddy takes care of my taxes."

And of course, same problem exists with Myth #4 as Myth #3. Even when someone you know and trust does your returns, how do you know that this person is a good tax reduction specialist?

And often, many of these family members or "buddies" are not even professional tax preparers. This person just happens to be "The Family Accountant. Just like every family has one person who knows a lot about cars (or mutual funds, or carpet cleaning, or whatever), many families have someone who "knows enough to be dangerous" with regard to taxes.

And even if your "Family Accountant" is a professional tax preparer, he's probably not charging you for return. He's doing you a favor. He prepares your return; you change his oil.

My first reaction to this kind of situation (when someone is getting his/her return prepared for free) is this: You get what you pay for! When a family member does your return "for free", how much attention can he give to your need for tax reduction strategies? Probably very little.

Tax Myth #5: "My tax situation is OK because I prepare my own returns."

If this statement applies to you, then perhaps you are a "do-it-yourself-er". Money is tight and you are used to doing things yourself anyway, so why not save a few bucks each year and do your own returns?

So you've spend countless hours over years pouring over forms and instructions, trying to figure out how to do returns. And you've done OK. No letters from IRS, no audits. Hey, pat yourself on back!

And now that tax preparation software is so readily available and affordable, doing your own return is a breeze! Just key in a few numbers here and there, push print button, and presto, you've got your return done in record time! And now you can even e-file your return with your own computer.

Have you ever heard of book, "The Millionaire Next Door" (by Thomas J. Stanley and William D. Danko)?

This book describes common characteristics of millionaires in our country. My favorite millionaire characteristic is this:

Millionaires become millionaires by minimizing their taxes and getting their tax & other financial affairs in order.

Now comes "Million Dollar Question": How do you think millionaires get their tax affairs in order? By doing their own tax returns? Of course not! Millionaires NEVER do their own tax returns! They have more productive things to do with their time.

Instead, what millionaires do is spend time and money each year on tax planning and tax reduction strategies, not figuring out what number goes on which line of Form XYZ.

So my challenge to you is this: What are you going to do this year to reduce your taxable income?

Are you a believer in any of these 5 myths? Now's time to get rid of them, once and for all.

Your financial well-being depends on it.