Starting a home based business? Telecommuting from home? Can you, and Should you, take a home office deduction?
Starting a home based business?
Telecommuting from home? Can you, and
Should you, take a home office deduction?
The IRS allows taxpayers to deduct expenses related to business use of their home if a portion of the dwelling is used exclusively for business.
The IRS usually allows taxpayers to take deductions in connection with a home office. For example, if you own a consulting business and you converted a room or the basement of your home to meet clients there, and you don’t use that part of the house for anything else, then you can take some business deductions connected with the business use. Likewise, if all of your business is done on the road, (let’s say, you’re a salesman or a contractor) and your only office is a room in your home which you use exclusively to do your paperwork and to make telephone calls, or to store inventory or samples, then you should be able to take some tax deductions for that office.
There is an additional requirement for employees who telecommute from home if they want to deduct these business expenses. If you’re not an owner of the business, then your use of your home office must be “for the convenience” of your employer.
As to what kind of expenses you can deduct, the Tax Code separates the expenses you can deduct into two categories: One category includes the real estate taxes and mortgage interest allocated to that portion of your home. You can generally deduct these expenses. This does not mean you’ll get extra tax savings, however, because those expenses are often already deducted on Schedule A of your Form 1040.
The other category of expenses you are allowed to deduct are office and business expenses connected with the running of the business from your home. This includes supplies, business furniture, some telephone expenses, and equipment depreciation. The deductibility of these expenses generally depends on comparing a bunch of figures, such as the total gross income from the business, the gross income generated from the use of the home office alone, the total expenses spent for the business excluding the expenses from the home office, and expenses allocated to the home office.
You can also take a depreciation for that portion of your home used as your home office; however, the depreciation period sometimes may take as long as 39 years.
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