Learning Center

04 JAN

Home Office Deductions Things You Should Know

Running a business from your home has its difficulties, but the positive aspects often outweigh the hardships. A home office is convenient, more inexpensive than renting a store front, and there is the opportunity to deduct any expenses that you spend maintaining the room you use as an office. Although the rules put in place by the IRS are strict, you put a great deal of effort into this business and should certainly try to get the most you can when filing your taxes.

Who qualifies for home office deductions?

Using part of your home for work is a tax benefit, and generally speaking, people with home offices are able to use this to their advantage come tax time. Of course, there are rules and tests that every tax payer/home office owner must follow.

First, the IRS specifies that your office should be in a separate room of the home or clearly partitioned from the rest of a room. Second, the IRS makes clear that this is an exclusive-use space in which personal activities or other studies do not occur. IF the space is multi-functional, or if work is only one of the activities you use it for, it’s best to be careful with home office deductions.

Another important thing stipulated by the IRS is that a home office must be the principal business place and/or be a location where clients conduct business with you. You are most likely to pass this test if you conduct substantial business, including investing as well as earning income, in your home office. If you have a separate building or a garage that has been converted, the rules are more lenient since the government views these spaces as less of an opportunity for other family members to use it.

What expenses can you deduct for your home office?

Once you’ve established the qualifications you need in order to be an official home business according to the IRS, there are ways to move forward with deducting office space on your taxes. Any maintenance you do in your office, such as painting or running an additional phone line to the room, qualifies for deductions. Also, depending on what percentage of your home the office occupies, you can deduct that percentage of utilities or insurance costs. Similarly, if you rent the home you run your office from, you may write off a part of that rent based on percentage.

Does a home office deductions make you more likely to be audited?

Up until the 1990s, home office deductions were very likely to trigger audits. Thankfully for home business owners around the country, though, laws have been established to help business owners get the return that they so often deserve.

Well worth the effort

Everyone who runs an office out of their homes should certainly do all they can to qualify for this return that can be well worth the effort. A home office has benefits that exceed the comfort and convenience levels, and these are oftentimes visible in the tax return you can get. Hiring a qualified tax specialist to handle and process your taxes, including your trick home office deduction calculations, can often save money and time.