HOME SWEET-HOME OFFICE TAX BREAKS

 

With so many people working from their home these days, deducting a home office could help you save on your income tax bill each year. The IRS states specific definitions and rules that first must be met in order to claim a home office deduction. Because this is an area that is subject to abuse, it pays to fully document everything, should the IRS question your tax return.

 

First, your “home” includes a house, apartment, condominium, mobile home, boat, or similar property, which provides basic living accommodations. It also includes structures on your property, such as an unattached garage, studio, barn, or greenhouse.

 

Home Office Defined-

To qualify to claim expenses for business use of your home, you must use part of your home:

• Exclusively AND Regularly as your principal business-a specific area only for your business and on a regular basis. No exceptions are allowed by the IRS.
• Exclusively AND Regularly as a place where you meet or deal with customers, clients, or patients in the normal course of your business
• In the case of an unattached structure, in connection with your business.

 

To recap, the use must be exclusively AND regularly as a principal place of business for a trade or business. And, if you are an “employee”, you must be required to work at home by your employer.

 

Calculating Your Deduction-

First, you will need to figure the percentage of your home used for business, based on either the number of rooms method or the total square foot method. For example, if you have 3 bedrooms and 1 room is used for business, then the business percentage is 33%. Or, if the total square feet is 2,000 and your business room is 500 square feet, the business percentage is 25%.

 

Next, you must keep a record of all of your expenses connected with both your entire home (mortgage interest or rent, real estate taxes, insurance, utilities) and those related specifically to your business (separate phone and fax lines, supplies, inventory, office equipment and other normal business expenses). You may also be able to claim maintenance and repairs to that area, as well as depreciation on your home. A trap of claiming depreciation is that when you sell your home, all of your depreciation deductions will need to be “recaptured” as income

 

With a business office, you may also be able to convert otherwise non-deductible automobile commuting mileage into deductible business mileage.

 

As you can see, the Home Office Deduction rules are a little complex, but with proper organizing and planning, they may save you valuable tax dollars at tax time.

 

Editors Note: Donald Scherzi is a Certified Public Account and a Certified Financial Planner. If you would like to contact him directly you can call him at 746-1926 or email him at donaldcpa@bellsouth.net.  He has been a Heights resident since 1996. You may visit his web site at www.donaldscherzicpa.com for tips, strategies, and news to improve your total financial well-being.