TaxBizPro, LLC posted on August 18, 2009 10:53
With today’s technology many people can run and operate a business out of their homes. Many clients may be able to take a home office tax deduction when filing their tax returns.
What do you need to know about claiming the home office tax deduction?
Generally, in order to claim a business tax 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 the case of a separate structure which is not attached to your home, it must be used in connection with your trade or business
If you have inventory and need storage, or have a daycare/playgroup in your home, you are required to use the property regularly but not exclusively.
Generally, the amount that is tax deductable depends on the percentage of your home that you use for business. So let’s say that the total square footage of your home is 1,000 sq. feet and the area that you will be qualified to deduct as home office is 250 sq. feet, so your deduction will be 25%. You can allocate this percentage to your rent/mortgage, utilities, home insurance, maintenance, etc. In some cases you also will be allowed to use Depreciation deduction on your home office. Your deduction for certain expenses will be limited if your income from your business is less than your total business expenses.
There are special rules for qualified daycare providers and for storing business inventory or product samples.
If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure your home office deduction. Report the deduction on line 30 of Schedule C, Form 1040.
Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.