The Home Office Deduction and How it Relates to Your Business

Six Things You Should Know About It

If you can legitimately take the IRS' home office deduction on your taxes, you're a winner twice over. You've been able to take an unused portion of your home and turn it into productive space for a business that you've launched yourself. You win again because this element of the 1040 can reduce your tax obligation.

home office deductions But the IRS scrutinizes this deduction carefully to make sure that you're not just trying to get a write-off for a hobby.

To make sure that you qualify to get the full benefit with minimal risk, here are six things you should know:

You must use the space in connection with a trade or business, not just for a profit-seeking activity.
Your home office must be used exclusively for your business. A room with a desk and a computer that you also let your children use for homework or that you use to surf the Internet is not a home office.
You can deduct space used for storage or inventory if it meets certain eligibility requirements.
Your home office must be a principal place of business. If you work for a company that provides you with an office at its location, you will not be able to take a home office deduction for that business unless you are doing so for the convenience of your employer and are not "renting" that office space to him or her.
You can claim an unattached structure on your property if your use is consistent with the IRS' other requirements.
Home offices can support a number of deductions. For example, if the office represents 15 percent of your home, you can write off 15 percent of all of your home's costs, including utilities. You can also depreciate the office portion of your home.

At The Tax Office, we have many years of experience in this area, and will be happy to handle all of your tax preparation needs. If you can legitimately claim the home office deduction, you'll want to document absolutely everything that's legally allowable on the IRS Form 8829. If you have any questions about your home business, contact us here.