How to claim your home office deduction
The luxury of working from home is something many office workers dream about as they sit stuck in traffic during their daily commute. For self-employed individuals, there is a lot of work that gets done off hours at home even if there is another business location. Having your home office set up properly is imperative to work productivity as well as a requirement for being able to take advantage of the home office deduction on your income taxes. If you meet the requirements to claim the home office deduction for tax purposes, you will not only benefit financially, but you will also have an office that will maximize your efficiency while shutting off the distractions of your home life.
In order to claim the home office deduction on your income taxes, there are two major requirements. First, your office must be regularly and exclusively used for business. Regular and exclusive use means you can not set up a computer in the family room or conduct meetings at the kitchen table and expect to reap the benefits. Ideally, you will want to have an extra room or separate area of your home that is used entirely for these activities. There are two cases in which you do not have to meet the exclusive use test. One is when you use part of your home to store inventory or product samples and the second is if you use your home as a daycare facility.
The second major requirement of the home office deduction is it must be your principal place of business. If you have a business location outside of your home, but also use your home significantly and regularly to conduct business, you may qualify for the deduction. This can be a little trickier if you are an employee versus self-employed. If you are an employee, you must use your home office for the convenience of your employer and you must not rent that home office portion to your employer. Just because working from home is suitable and effective in completing your required tasks, it does not mean you can deduct the business use of your home.
If you have made it this far and you believe you qualify for the home office deduction, you are probably wondering what and how much you can deduct. Starting in 2013, a taxpayer has two options on how to claim the deduction. First, there is Form 8829 that will require extra work including some complex calculations and allocations of mortgage interest, property taxes, depreciation of your home and other certain costs of operating your home. The second option that was first put into place in 2013 only requires a short worksheet. Based on the simple calculation, you may be able to deduct up to $1500 and save a lot of time. Of course, the IRS does not put a simplified method in place to save you time and money. In most cases you are going to be better off with the lengthy calculations, but to maximize your deduction you should compare both calculations.
For a more comprehensive explanation of the tax deductions related to your in-home office, you can refer to Publication 587, Business Use of Your Home. This publication will go more in-depth related to the requirements, the types of expenses eligible to deduct, and the instructions for recording and calculating your deductions. If paging through an IRS publication does not fit your time schedule, feel free to contact me or your current Enrolled Agent or tax specialist to evaluate your case.
Jayson owns and operates a tax and accounting business out of his home. He can help you with your individual or small business tax needs as well as payroll and bookkeeping for your small business. You can connect with him and his business on LinkedIn, Google+, Twitter, Facebook or visit his website at www.jcwtaxaccounting.com.