Tips to Home-office Deductions
Home office deductions make many people nervous. Afraid to be a red flag to the IRS for an audit, many taxpayers simply do not bother with the deduction. But they have to pay more tax.
The trickiest part of home office deductions is to know whether or not you are eligible to write off a portion of your home as a business expense. If you are able to write off a portion of your rent or mortgage costs, plus any utilities and housing expenses, you are able to reduce your taxable income.
You have to know what makes your home office space deductible. There are three basic rules that you must meet to determine eligibility.
The first rule is the "exclusive use" rule. Your office space must be devoted solely and wholly to your business and nothing else. In the other words, you can not use the space for other activities. For example, if you use your office to run your business and run your household, you can not deduct it as office space.
The second rule is the "regular use" rule. Your home office must be used on a regular basis for business. For example, if you are self employed and rent an office outside of the home, you probably will not be able to deduct your home space. But if you can show that you regularly have meetings with clients in your home office, you may be able to deduct it.
The third rule is the "principal place of business" rule. Your home office must be the working place you do your administrative tasks, bring your clients or a separate structure. You do not have to do the majority of your business there. You must only adhere to one of the above. So if you rent an office in town, but do your bookkeeping in your home office, you may be able to deduct the costs for that portion of the home.
The best way to protect yourself from a potential IRS red flag is to have your taxes prepared by a tax professional who is up to date on the changing laws. Using an advanced professional online tax return software is another way, but read the guide completely and carefully before you send out the file by internet. |
