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Is the Home Office Tax Deduction for You?
One of the best and often overlooked tax deductions is the home office deduction. While this won't reduce your IRS payment to zero, it can still provide a lot of added value, especially for those working from home or running a business out of their spare bedroom. Just make sure to use it correctly.
For starters, it requires no additional outlay. Unlike many other deductions that require you to invest in something or spend additional money in order to qualify, the home office deduction does not. It is just a matter of shifting perspective. What you would normally see as a non-deductible expense, such as a business-related internet bill or new printer, could indeed be a write-off. Take some time to think about items that you also use for business that could fall into this newly discovered category.
Best of all, it's very easy to claim and requires little to no advance planning. While you're at it, you can even claim write-offs from last year's tax expenses, if you haven't already. Simply file an amended return for your last year's tax return and claim a tax refund. Again, just be sure you are making claims on justifiable items. Here are a few tips to keep in mind:
1. Make sure your office space is exclusive
This means that you cannot use this space for anything else. For example, if you happen to do work in your dining room but also eat dinner here every night, it would not qualify. This space needs to be used for business activities and nothing else. (There may be an exception to this restriction if you use part of your house as a licensed day care facility.) Don't challenge the IRS, they will win. I promise you.
2. The space claimed must be your primary place of business
Now, this doesn't mean that it's the only place of business, it just means that it's the principal place of business — it's where majority of your work is done, but again, not necessarily all your work. This is usually what stops people from claiming their home office as a tax-deductible expense because they think of the other places they also work, but this is not the case. As long as you spend 51 percent of your time here, it counts. Regardless of where the other time is spent.
3. Don't fear the IRS
While many myths claim that home offices are an IRS audit flag, that is not the case. In today's day and age, almost half of Americans have home offices. The issue is that less than half of those people are claiming them as deductions because of the fear of being audited. Don't be one of those people. Don't let the IRS take more of your hard-earned money. Claim what is rightfully yours, and write off all those business-related expenses.
The final piece of advice is to consult with a tax professional, who can address your particular situation, and which deduction method (regular or simplified) is right for you, and confirm what expenses are in fact tax deductible.