According to an article in Forbes magazine, less than 10 percent of home-based business owners use the home of office deduction. The Internal Revenue Service has made it easier to claim the deduction by establishing a simplified option that reduces the number of calculations you must make. To make sure that you are using your home office deduction correctly, we have put together some useful information concerning eligibility requirements, what you can claim, and how to use the deduction.
Who Can File for a Home Office Deduction?
In order to claim a home office, your home must be the principal location of your business. If you have an office across town but do a lot of work from home, you may not qualify. However, if the outside office is designated as a secondary business location, you may still claim the primary space at home. One example where this might be useful is if you work from home but make use of a local business incubator for client interviews, deliver presentations, or some other business function which demands a commercially professional setting. If your business mail is sent to your home and a majority of your work is done there, you are probably eligible for a home office.
Secondly, the area used as your home office must be a dedicated space that is exclusively used for business operations. A home office can even be, for example, a corner in your dining room, so long as the official office area is exclusively used to conduct your business in some manner.
How the Home Office Deduction Works
The standard method of determining your home office deduction requires you to break down the percentage of your home used by your business, and then itemize the expenses such as mortgage and maintenance based on that percentage. The simplified method available today allows you to multiply the square footage your home office uses by a designated rate. This avoids having to do a lot of complex calculations and having to break down every household bill such as utilities, Internet, and heating costs.
IRS Publication 587 for Home Office Tax Deductions
The IRS has a special publication describing the eligibility and use of the home office tax deduction. Publication 587 explains both the standard and simplified versions of the deduction as well as other useful deduction information, such as using some or all of our home office to store products or inventory. Reading through the publication will show you exactly what is allowed and what information is required to claim the home office deduction.
If you use a specific portion of your home– even an entire secondary building on the property– claiming a home office tax deduction may reduce your tax liability. For questions about deducting home office space, contact the professionals at Ernst Wintter & Associates LLP.
