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Deducting your Home Office

Posted by HomeWork Solutions on 8/8/19 10:00 AM
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Working from home could save you more than just commuting costs! You could be eligible to deduct your home office expenses. It is a complicated deduction to claim so take a look at this post and see if you qualify.

The biggest change is that under the Tax Juts and Jobs act, employees can no longer claim a home office deduction. If you run your business from your home or are otherwise self-employed you might be able to claim deductions based on the part of your home that you use for business purposes.

If you own your home and use specific parts of it for business you might qualify to deduct portions of actual expenses like utilities, your mortgage, property tax, and more. You may however rather go for the simplified deduction of $5 per square foot, up to $1500 in deductions.

How You Qualify

The two important factors are Regular and Exclusive use of part of your home for business purposes.

  1. Regular use. You have a specific area of your home that you use for business on a regular basis. Sporadic work-from-home days and the like don’t count.
  2. Exclusive use. The area of your home that you use for business isn’t used for anything else. If your office doubles as a guest room it no longer qualifies. This area however does not need to be physically partitioned off.

You also need to consider your Principal Place of Business. For your home to qualify you need to use the space identified exclusively and regularly for administrative or managerial activities for your business and not have another fixed location where you conduct these tasks. This means that if you go into an office to manage your team, but take occasional client meetings at home, your home would not be considered your principal place of business.

Other Criteria

The good news is that your home doesn’t necessarily have to be your principal place of business for you to deduct home office expenses. If the use of your home is substantial and integral to your business you may still be able to deduct expenses. An example of this could be an artist that sells their work from a gallery but has their studio at home. You might also qualify if you have a dedicate storage space for business related items in your home.

Proceed With Caution

As you can see the home office deduction is difficult to claim properly. The IRS often sees this deduction as a potential red flag and it could be you are at a higher risk of audit. That said, if you do qualify and have your record keeping organized it can provide significant tax savings. For more detailed information, contact your personal tax accountant.

Topics: agency, CPA

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