Documentation Is The Key
Author: Keith Huggett
A home office is a legitimate business expense, but some associated write-offs might trigger an IRS red flag if you're not careful. Although the guidelines are very specific, the home office deduction is a category that is easy to abuse, which is one reason the IRS takes note when you claim it.
These top three write-offs could trigger an IRS red flag, but if the expenses are legitimate and you have the documentation to back them up, claiming the deduction can save you a lot of money:
- Depreciation: Any office equipment or furniture you purchase for your home office can be depreciated over five to seven years. If you own your home, you can also depreciate the portion of your house that is used as an office over 39 years. Like any depreciation expense, you must accurately track the method of depreciation and claim it only while the property is still in service.
- Real estate expenses: If you pay real estate taxes or mortgage interest, a portion of these expenses may be deductible. The important factor here is the percentage that you are allowed to deduct. Claiming too much is an IRS red flag that can be avoided by accurately measuring the square footage of your home and the office space within it. Claim only the percentage that you actually use as an office and the expense is legitimate.
- Business expenses: You can claim a portion of your utilities (the same percentage used to calculate real estate expenses), and cleaning, repair and other related business expenses. Again, only claim what you actually use for the business and you should be able to overcome any IRS red flags.
