Tips on Taking the Home Office Deduction

by Kristine on February 19, 2012

If you have an online business, chances are you work from home.  The number of people telecommuting from home and starting online businesses is growing, which means the number of people using their home for business is growing as well.  Since we’re at the start of the 2012 tax season, I thought now would be a good time to review some tips on taking the home office deduction.

What is the home office deduction?

If you qualify, the home office deduction allows you to turn certain personal expenses into business expenses.  According to the following video, expensese that qualify for the home office deduction include:

  • Rent or mortgage interest
  • Utilities
  • Insurance
  • Real estate taxes
  • Repairs & maintenance

Home Office Deduction

Find out from IRS experts what expenses are deductible, and what is not, in a home office.

Who Qualifies for the Home Office Deduction?

In order to qualify for the home office deduction, you must use the space regularly and exclusively for business.  The amount you can deduct depends on the percentage of your home used for business.  For example, if you use a spare bedroom that is approximately 8% of your home, then you can deduct 8% of your mortgage interest, real estate taxes, etc.  The following video created by the IRS is a great introduction to the home office deduction rules.

Tax Tips: Home Office Deduction

Whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction.

Regular and Exclusive Use Defined

Defining regular and exclusive use for purposes of the home office deduction can be confusing.  Barbara Weltman of WSJ.com explains that the space must be available 24/7 for business and cannot be used by you or your family for personal reasons at any time during the day or night. Thus, if you use a TV room as an office during the day and your family watches TV there in the evening, you fail the exclusive-use test.

Tips to Help You Claim a Home-Office Deduction – Wall Street Journal

Tips to Help You Claim a Home-Office Deduction – Wall Street Journal By BARBARA WELTMAN.  A portion of personal expenses for your home can be turned into a business deduction — if you meet certain rules. To claim a home-office deduction, you must use the space in your residence as a principal place of business, as a place to meet or deal with customers on a regular basis, or as a separate structure used for the business. You also must do the above regularly and exclusively for business…

Avoid these Common Mistakes when taking the Home Office Deduction

As with any tax deduction, you need to be careful that you follow the rules to avoid being audited or having the deduction taken away from you.  In the following article Brett Hirsh warns of common mistakes made regarding the home office deduction:

Home office deductions can be dangerous – Martinsburg Journal

Home office deductions can be dangerous – Martinsburg Journal.  Unfortunately, many who claim the home office deduction do so in error. The frequency with which this deduction is erroneously claimed makes it one of the first deductions the IRS questions. This article will help owners ensure their home office passes muster if and when it is questioned…

Home Office Tax Calculator

If you think you may qualify for the home office deduction, check out this calculator to estimate how much you can deduct.  You’ll need to enter information about your home (square footage, number of rooms, etc.) as well as information about your business (income and expenses) in order to use this tool.

Resources

The IRS website is actually a great resource for researching the home office deduction and other tax topics.  Here are a few great resources to check out:

Publication 587
Home Office Deduction
Working From Home? Consider the Home Office Deduction
Home Office Deduction Reminders

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