Home Office Deductions
You have started a new business in your home. If your business continues to operate from there, you may be eligible for a home office tax deduction. Read on to find out if the way you operate your home business qualifies you for this deduction.
When this subject was first approached, deductions were claimed for things like using the family room to address envelopes for business invoices. The home office deduction has been narrowed down to weed out uses that don’t qualify.
The use of the home for business has to meet certain requirements. The use needs to be exclusive, regular, and for business. The room in your home where you conduct business is the primary place of business even if you have someplace else where you also conduct business activities.
This does not mean that the family room can be used for a home office deduction if you address envelopes once a week. The “exclusive” requirement means that the room is used for business and nothing else. A room can’t double as the office and qualify for the home office deduction.
This also goes for equipment in the home office. The use of the equipment has to be for business and not personal use. If you have one computer in the home, chances are the other family members are using it when you are not.
A room that is set up as an office and is only used as such would qualify for the home office deduction. Any equipment for the business that can fit needs to be in that room to ensure that no one else is using it for personal stuff. For a qualified room, a portion of the interest paid on mortgage payments, taxes on the home, and utility bills can be deducted. Take the square footage of the room and find out what percentage it comprises of the total footage of the home. This is the percentage of the bills that can be deducted for the home office.
Those who don’t qualify for the home office deduction are not left out in the cold. There are other ways to garner a tax deduction for your business. You can deduct the amount of money spent on equipment that is used for the business. This includes paper clips, printers, computers, copiers, pens, computer paper, and the like.
Exceptions do exist to the exclusivity rule that applies to the home office deduction. If the office is used as a daycare facility or to store inventory, the square footage of the room can be deducted. The deduction for the home office is limited by the amount of profit that you make from the business.
Add up your business expenses and the amount of profit you made during the current tax year. When profit is more than or equal to the business expenses, you can claim all deductions that apply for the home office. On the other hand, if your business expenses are more than the profit you made, the home office deduction is limited.
--
Leave a reply