Home Office No Longer Red Flag?

July 20th, 2011

Whenever talking to clients about the allowable home office deduction, some usually respond with…

….”Are you kidding”, ….”No way!”, …”Isn’t that a RED flag”, or my favorite…”I’d rather play it safe than sorry”.

Well, of course 10 years ago it MAY have been a RED flag. And if you don’t have a trusted tax adviser showing you how to maximize AND document your deductions, red flags may be the least of your worries.

But in today’s business climate, the IRS understands that working from home is a growing trend among businesses trying to cut travel, labor, and environmental costs!

In fact, the IRS just sent out a tax tip reminder in March 2011 entitled, “Work From Home? Consider the Home Office Deduction”. That’s right! The home office deduction is very allowed and very legal by the Internal Revenue Code and the IRS! You just have to know how to use it and document your deductions!

So whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction.  Here are six things the IRS wants you to know about the Home Office deduction:

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

  • as your principal place of business, or
  • as a place to meet or deal with patients, clients or customers in the normal course of your business, or
  • in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.

2. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.

3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.

6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information or to discuss strategies to maximize AND document your home office deduction, call our office at (614) 991-5107.

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