Safely Taking a Home Office Deduction | USTaxAid

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Safely Taking a Home Office Deduction

Written by Diane Kennedy, CPA on October 19, 2010


Do you have a business? If so, do you take the home office deduction? If you’re not taking, or even if you are, you’ll want to read today’s article on how you can safely take the home office deduction on your tax return.

First, and foremost, you must have a business. In the past, there have been some con artists/promoters who sold tax savings packages that told you anybody could take a home office deduction. But they neglected to say you have to have a business first.

Assuming that, there are two criteria for taking the deduction. The home office space must be:

  • Exclusively used for business, and
  • Regularly used for business.

Before we go on to those topics, notice what it doesn’t say. It doesn’t say you have to have a corporation. It doesn’t say you can’t have another office (in other words, you can have another office). It doesn’t say you have to see clients there. It doesn’t say you have to have a separate entrance.

You just need to EXCLUSIVELY and REGULARLY use the space for business.

Exclusive means it’s a separate space. It’s not a corner of your dining room table. It’s a spare bedroom, the attic, the basement or other space that can be clearly delineated as exclusively used for business.

Regularly means you do business there. If you have an office where you see clients/patients/customers on a daily basis and use your home office for checking email, research or other functions, you’ve got a deduction.

Next step is to measure the space of your home office. Compare the square footage of your home office to the square footage of your total home. That percentage is your business use percentage that is applied against all indirect home costs.

An indirect home cost are expenses are that for the whole house: utilities, HOA dues, property tax, insurance, mortgage interest, rent, etc.

Direct home office costs such as the cost of flooring in the space, conversion costs to turn the closet into a supply closet, etc are 100% deductible.

Don’t be afraid of the home office deduction! Just make sure you document every step of the way. Take pictures. Draw up a floor plan. And then keep your documentation in case the IRS ever asks.

For over 1000 deductions your business might be able to take, check out this week’s special Business Deduction Maximizer. For just $99, you might find a handful of ideas that could save you thousands!

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