Tax time can be a frustrating and nerve racking time. Most taxpayers want to pay the least amount of taxes possible without crossing any lines that may start the audit process. In order to pay fewer taxes, a taxpayer needs to deduct anything that is allowed. One item to consider would be a home office tax deduction.
There are a couple of things to consider before you take this deduction.
Do I Qualify to take a home office tax deduction? The home office deduction is for people that run a small business or do freelance work out of their home. There is a cost involved in running a home office, if you dedicate a portion of your home to the office, then the cost to take care of the portion is tax deductible.
What qualifies as a home office? The IRS does not care what portion of your home or property you dedicate as your home office. They consider two things to determine if you can take the deduction. You have to use the area on a regular basis and exclusively for a trade or business.
You must be able to show that you use the area as your main business area or use the area to meet clients.
What are common deductible home office expenses? Typically you can expect to deduct the cost of running the office. Common expenses would be utilities, a portion of the rent or mortgage, homeowners insurance, or repairs for the office portion of your home. You cannot deduct the entire bill, but you can deduct the portion that is used to run your business.
Small business owners often overlook this deduction. People tend to fear the IRS and feel if they take the deduction that it will lead to an audit. A good thing to remember is the deduction was created because it does take money to make money. So it is normal and expected for a person to have to spend money to create a work environment. For many small businesses, it does not make sense and is not cost effective to rent a building just to work from. Creating a small area or office in a home is far more cost effective and serves the desired purpose.
When tax time approaches the best plan of action is to talk to your tax advisor or accountant. They can consider your business and help you make the appropriate choices and deductions. Education is the key to abiding by the rules and follow them.
The IRS provides information to the public on all subjects. I would suggest looking at the Publication 587, Business Use Of Your Home, This will go over the current rules. Please remember the rules can change all the time so make sure you read the most current form and of course seek professional help from your accountant.