Claim Home Office Deduction

Claim Home Office Deduction

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes.

To claim the home office deduction, your space must meet two tests:

Regular and exclusive use

In the IRS’s own words: “You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.” In other words, if you use a room in your house solely to operate your business, it meets this test. But if you use the room for your desk and as your kids’ playroom, it may not.

Principal place of business

You must show that you use your home as your principal place of business. For example, if you rent an office and also sometimes work at home, you probably won’t qualify for the home office deduction. That said, you may be eligible for the home office deduction if you carry on the course of your business in more than one location. (We told you this was complicated!) Product sellers will be happy to know that freestanding buildings can also qualify for the home office deduction. So if you operate your business or simply store your products in a freestanding storage building in your backyard, you may be eligible for this deduction.

Simplified Option
For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014), you now have a simpler option for computing the business use of your home (IRS Revenue Procedure 2013-13, January 15, 2013). The standard method has some calculation, allocation, and substantiation requirements that are complex and burdensome for small business owners. This new simplified option can significantly reduce recordkeeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses.
Regular Method
Taxpayers using the regular method (required for tax years 2012 and prior), instead of the optional method, must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities

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