Gathering business records for your tax preparer? Don't forget records for your home office space deduction.
Lifehacker relates the best and worst things about working from home. One of those best AND worst things is taxes. It's great to be able to take your home office space as a tax deduction. But it's also a pain because of the strict IRS rules on this deduction.
The IRS says the space you designate for your home office must be used "regularly and exclusively" for your business. That doesn't mean you must use it every day, but at regular intervals. You cannot use it for anything else. EVER.
Steps in the process:
Calculate the space. You don't have to use the entire bedroom. Select only the space where everything is 100% related to your business. How to calculate the home office space percentage.
Include direct home office expenses like supplies and maintenance for this area.
List all home expenses you can use to calculate this deduction, like homeowner's insurance, utlities, and internet usage.
If you want to avoid the hassle and you have a very small space, you can use the new IRS simplified home office space deduction option. The alternative adjustment is calculated by multiplying the allowable square footage of the home business space (up to 300 square feet) by a prescribed rate (currently $5 per square feet).
Would your bedroom office pass the IRS audit test? Read this article on preparing your home office for a possible IRS audit.
DISCLAIMER: The information in this article and on this site are not intended to be legal or tax advice. Every situation is different and tax laws change frequently. Discuss with your tax professional before you include a home office deduction in your business tax return.
Who qualifies for the home office deduction
You can claim the deduction whether you’re a homeowner or a renter, and you can use the deduction for any type of home where you reside: a single-family home, an apartment, a condo or a houseboat. You can’t use it for a hotel or other temporary lodging.
The home office deduction rules also apply to freestanding structures. You can use a studio, garage or barn space as your home office as long as the structure meets the “exclusive and regular use” requirements.
Here are the conditions you’ll need to meet:
Regular and exclusive use: The space you’re using for business must be used exclusively for conducting business. For example, using a spare bedroom as both your office and a playroom for your children likely makes you ineligible.
There are two exceptions. If you provide day care services for children, elderly (65 or older) or handicapped individuals in that part of the house, you can probably still claim business deductions, as long as you have a license, certification or approval as a day care center under state law, according to the IRS.
The other exception is if you use the office for storage of inventory or product samples you sell in your business.
Principal place of business: Although your home office doesn’t have to be the only place you meet your clients or customers, it must be your principal place of business. That means you use the space exclusively and regularly for administrative or management activities, such as billing customers, setting up appointments and keeping books and records, according to the IRS.