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Home Office Tax Deductions

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Home Office Tax Expenses

America is a country built on small businesses. Yes, the big companies are the darlings of the media, but the guts of our economy are the little guys pursuing the American Dream from the extra bedroom. Fortunately, the tax code contains deductions tailored to help cut your tax bill.

When claiming home office tax expenses, it is important to keep a receipt for each and every amount you are claiming. When dealing with the IRS, receipts are your ammo. Keep them at all costs.

When maintaining a home office, taxpayers often wonder how they differentiate a business expense from a simply home expense. The key is the square footage. Simply divide the square footage of your office by the total square footage of the home. This number is typically represented by a percentage such as 20 percent. Put another way, the home office represents 20 percent of the square footage of the house. Once you have the above answer, you can multiply it by the total yearly amounts paid for rent or mortgage interest, insurance, maintenance, utilities, taxes, depreciation of the home and repairs. Each of these home office tax expenses figures can then be deducted.

In addition to the above, you can also deduct expenses completely related to the business. For instance, the purchase of a desk for the office is entirely attributable to the office and can be deducted in full.

Words of Caution

There are some limitations to home office tax expenses. If you are reimbursed by an employer for various home office expenses, you cannot also claim those expenses as a tax deduction. Sorry, no double dipping.

For some time, there has been an urban myth that the Internal Revenue Service keeps a close eye on home-based businesses. This may have been true ten years ago, but is clearly not the case today. To this end, the IRS has actually come out and issued clear statements to the contrary. Do not fail to claim home office tax expenses because of a fear of an audit. It is simply not a rational fear!

Running a small business can be both stressful and incredibly gratifying. Make sure you claim home office tax expenses to help your cash flow.

Home Office Tax Deductions

The number one rule about qualifying for a home office deduction is that whichever part of your home you use as a home office must only be used by you and must only be used as a home office.

A Home Office, And Nothing But A Home Office

In other words, if your home office is in the den and you use it as a home office ten hours a day, but then flip the computer into game mode, or turn on the TV to watch the Tonight Show, bye-bye home office deduction.

The exception is that if your computer area in the den is used for nothing expect you home business--no games, kids in chat rooms, or listening to MLB--you can get a home office deduction equivalent to the cost of keeping that much of your den, say a space 4'x 6?--operational.

If you and your spouse each have a home business and use the same office, bye-bye home office deduction for both of you. You can get around this, if your home has the space, by having separate home offices in different rooms.

Every Little Bit Helps

If your 240-square foot den constitutes 10% of your 2400-square foot house, and your 24-square foot home office area constitutes 10% of your 240-square foot den, you can take 1% of your entire home expenses as a home office deduction.

It's a good idea, just incase the IRS wants documentation, to take a time-stamped picture of your home office space, in case something happens during the year so that you have to move your home office operation to another area of your house. You'll need to keep separate documentation for the different work areas if they are different sizes.

If you work for someone else and telecommute, doing your job exclusively from home, you can take a home office deduction, but you must be able to show that you do those jobs for your employer only at home and not at his or her facility. For more info see http://www.i-homeofficefurniture.com/Home_Office_Store on products and services.

If your home office computer accesses the Internet through your only home phone line, you may not deduct the cost of the phone line, because the IRS considers a home's primary phone line to be for personal use. But if you have added business features like a 1-800 number or call waiting to your primary phone line, you can take the cost of them as a home office deduction.

Your best bet, however, in understanding what qualifies as a home office deduction is to consult with a qualified tax professional. You can get started with IRS Form 8829.

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Both Richard Chapo & David Faulkner are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

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