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Home Sweet Home Office Deduction |
Today's technology makes it possible for more people to work from home. Companies benefit from the reduced overhead, while individuals avoid the hassles of commuting and enjoy a more relaxed work environment. In addition, a person who works from home -- either employed or self-employed -- may be able to claim a tax deduction for maintaining a home office.
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What Can You Deduct?
If you qualify to take home office write-offs, you can deduct a proportionate share of expenses including mortgage interest, depreciation deductions, utilities, insurance, security systems and repairs.
Other tips for increasing and protecting your home office deductions:
· Take photos to prove the room was used for business purposes in case of an IRS audit.
· If your employer requires you to maintain a home office, ask the company to provide you with a statement confirming that requirement.
· To figure the percentage of your home used for business, you can use the most advantageous of two methods -- square footage or the number of rooms.
· Even if you don't qualify for the deduction, you might be able to get a write-off for the expenses involved in storing inventory or product samples in a room in your home.
· Home office deductions can't exceed your income. But if your expenses and deductions are greater, you can carry the loss forward to a future year. |
But simply working from home isn't enough to make you eligible for the tax break. To qualify, you must meet these two IRS guidelines.
1. Exclusive and Regular Use
According to IRS Publication 587, your home office can be a room in your house or a separate, detached structure, such as a garage or freestanding building on your property.
But it must be used regularly and exclusively for business. In other words, you can't simply set up a computer in a corner of your family room to occasionally print invoices, while the rest of the time, the kids use the computer for e-mailing and homework and your spouse uses it for family finances.
2. Primary Workplace
The home office must also serve as one of the following:
- Your principal place of business.
- The location where you meet with clients, customers, or patients.
- The place where you perform the management or administrative functions for your company. One word of caution: Your home office must be the only place you can perform the management or administrative functions. If, for example, you have an office in your retail store where you can do these tasks, but you prefer to bring the work home and do it in the evening, you cannot claim a home office deduction.
Although it is easier for self-employed individuals to deduct home office expenses, employees who work from a home office for the convenience of their employer might also be able to claim deductions. The rules that define what is "for the convenience of the employer" are not set in stone and therefore, can vary by circumstance. A qualifying situation could be where an employee must have an office to do his or her work, but the employer doesn't have space to provide one. If you work from home simply because it's easier for you, you probably do not qualify.
There is an additional requirement: Employees cannot pay rent for any part of their homes to employers and then use the rented portion to perform services.
Even if you meet the above requirements, employee home office deductions are unreimbursed employee business expenses and are therefore subject to the 2 percent of adjusted gross income rule, which makes it difficult for many employed taxpayers to qualify for deductions.
Whether you are employed or self-employed, the landscape of the business world is changing. Working from home is becoming more attractive due to high overhead costs, long commutes and high driving expenses. Add to that the possibility of a tax break for maintaining a qualified home office and you've got a win/win situation.
This article is provided as a service by: L.S. Sherman Litigation Consulting.
LSSLC is a group of complex litigation specialists helping attorneys prepare successful complex litigation through the management of detailed technical information and engagement of experienced testifying experts of unsurpassed quality.
Contact Linda Sherman: 610-642-7755
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LSSLC, LLC provides the information in this newsletter for general guidance only, and does not constitute the provision of legal advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.
The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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