Many people who have small businesses also have home offices which may make them eligible for tax deductions. The home office deduction is available to both homeowners and renters in all types of homes. If you qualify, this can significantly reduce the amount you owe in taxes each year.
There are two main requirements to qualify for a home office tax deduction, as follows:
The most difficult aspect of qualifying for home office deductions is demonstrating that a portion of your home is exclusively and regularly used for your business. You can qualify if your office is in a separate room or sectioned off in a bigger room, especially by partition.
It’s important to note that the Internal Revenue Service (IRS) is very serious about this requirement. Even if you work in what you designated as your “home office,” if you allow others in your home to use the office for other purposes, it is not being exclusively used for business. In that regard, it cannot be considered a home office deduction.
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You must also demonstrate that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially to conduct business, you may still be able to qualify for the home office deduction.
For example, if you have in-person meetings with your clients, but you also conduct business at home, you can deduct your expenses for the part of your home that is used exclusively and regularly for business.
Typically, deductions for the home office are based on the approximate percentage of your home that you devote to running your business. By way of example, if you use an entire second bedroom for conducting business, you need to figure out what percentage your second bedroom is of your entire home.
If you’re an employee and you use a part of your home for business, you may still qualify for a deduction. However, you must meet the following test:
Even if you use a part of your home for business, if this is merely for convenience, you cannot deduct expenses for business use of your home.
There are several types of expenses at your home office which are classified as tax deductible:
However, it is more complicated than just simple deductions for all of these expenses. You must use the following methods to determine your allowable total for tax deduction:
Tax law is a very complicated and frustrating subject. To make matters worse, tax law changes every year. Contact a tax attorney if you need help understanding current tax law and how it affects your home office expense deductions. If you have questions regarding the deductibility of your expenses, or you need to go to tax court, an attorney can represent you and help minimize your income tax bill.
Last Modified: 06-07-2018 06:24 PM PDTLaw Library Disclaimer
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