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Whether you are self-employed or an employee, if
you use a portion of your home for business, you may be able to deduct the
associated costs.
A
home-office deduction generally is easier for self-employed individuals to
claim. But even then, the Internal Revenue Service has certain
requirements a taxpayer must meet.
First,
your home-office area must be used regularly and exclusively for your
business needs. You can't set up a computer in your den, input invoices
sporadically and then claim that room as your home office.
Secondly,
the business part of your home must be either your principal place of
business or where you meet or deal with patients, clients or customers in
the normal course of your business. A separate, detached structure such as
a garage or guesthouse that is used for business also may qualify as a
home office.
A
few years ago, the IRS broadened the business activities that can be
considered in determining whether a home office is a taxpayer's principal
place of business. Now if a home office is used exclusively and regularly
for the administrative or management activities of your business, it also
qualifies.
Such
things as billing operations, keeping your books and records, ordering
supplies, or setting up appointments qualify as administrative duties. Be
careful here. The IRS cautions that your home location must be the only
place where you can fulfill these responsibilities.
If
you are an employee who also works at home, you must meet the same
home-office standards as do self-employed taxpayers. Plus, you cannot
deduct your home office unless the business use of your home is for your
employer's convenience. There are no hard-and-fast rules when determining
whether your home's business use is for your employer's convenience. It
depends on all the facts and circumstances. However, having a home office
simply because it makes things easier for you and your boss generally
won't pass IRS home-office muster.
If
you meet all the requirements to claim a home office, some of the expenses
you can deduct include a portion of your real estate taxes, deductible
mortgage interest, rent, utilities, insurance, depreciation, painting and
repairs. The total amount you can deduct depends on the percentage of your
home used for business. And your deduction will be limited if your income
from your business is less than all your business expenses.
Self-employed
taxpayers need Form 8829 to figure the home-office deduction and then must
report the amount on line 30 of Schedule C. Employees can use the
worksheet in IRS Publication 587, Business Use of Your Home, to figure
allowable expenses and claim them as miscellaneous itemized deductions on
Schedule A. |
