The popularity of the home business model has seen a significant spike in recent years. More and more individuals have found success earning a living from the comfort of their own home. There can be many perks to being a home business owner, but one benefit not many owners take advantage of is the ability to claim a home office tax deduction. If you own a home business and aren’t sure how to approach such a claim, know these important dos and don’ts:
Do use a dedicated work space
Calculating the amount of money you can deduct for your home business is largely dependent on having a dedicated space from which you work. Depending on your business, this can be an in-home office, a converted bedroom, or any space you use for the sole purpose of running your business. The IRS requires your home office to be your primary workplace, and should be able to also accommodate client meetings and more.
Don’t misuse that work space
Having a dedicated office space in your home means the space cannot be used for anything else in your day-to-day life; simply setting up your computer at the kitchen table or in your bedroom won’t qualify you for the deduction. The space must be a permanent, business-focused fixture in your home.
Do accurately calculate the space you’re deducting for
The total amount of expenses saved from a home office deduction is calculated based on the space you use for that office. The IRS website lists a simplified set rate that can be used to calculate your deduction based on square footage. The rate is $5 per square foot of office space, and this can be extended up to a max of 300 square feet for a deduction of $1,500.
Don’t assume storage space can be deducted
The subject of claiming storage space can be a tricky one. In certain situations, such as storing inventory for your retail or wholesale business, or operating a day care center, storage space can qualify. However, most other situations would likely be denied. IRS Publication 587 states, among other stipulations, you can only claim a deduction for storage space on your taxes if your business location is your home. If you have an off-site office space, you can’t get credit for boxes you keep in your basement.
Do learn what else can be deducted
Qualifying for home office deductions means more than just having the appropriate office space. Other aspects of running a business from home can also qualify. These include expenditures associated with traveling to and from your home for business purposes, regularly conducting meetings and interviews in your office, operating a sideline business, and more. A tax expert can help you understand what to claim and how to track it for the IRS.
Don’t fear an audit
The biggest reason many home business owners forego a deduction is the fear doing so might trigger an audit. The good news is that this is highly unlikely. As noted by TurboTax, a number of rule changes in the late 1990s have made qualifying for home office deductibles much easier. If you meet the requirements of having a dedicated office space and a business that principally operates out of your home, you will be fine.
With these helpful tips at your disposal, determining your qualifications for home office deductions should be a simple and rewarding task.