Home Office Tax Deductions

For people who own their own business or simply choose to work from a home office, taxpayers are entitled to claim a few home office deductions from their yearly tax payments to the federal government. These deductions include everything from utility costs, gasoline and mileage use, mortgage payments, and miscellaneous costs toward business equipment.

These sorts of deductions are most common for those who have established a small business, such as an LLC (Limited Liability Company) or some other form of business registration, usually with their state’s office of secretary of state. Taxpayers must make sure with their CPA or tax advisor which deductions they qualify for, especially for those who qualify for home office deductions.

Those making these deductions, be warned: home office deductions are often noticed by the IRS, and those claiming too much or for things that are seemingly frivolous run the risk of being audited. At any rate, it is vitally important for all business owners who work from their home to keep copies of all purchases, receipts of sale, and any other paperwork that may need to be presented in defense in the event of an audit by the IRS.

Working Space

For renters who have an established business, up to half of the rent can be deducted as a tax write-off. For homeowners, the portion of the living space that is exclusively used as a working space must be calculated. Homeowners must measure the dimensions of the office space to be used and then divide that number by the total square feet of the entire residence.

For example, if your home is 3,000 square feet and you use a 300-square-foot room as your office, then 10 percent of each expense of the home becomes part of the home-office deduction. You can add to this any direct expenses for the office, such as painting it. It’s helpful to take a photo of your office and keep it with your tax records in case the IRS questions your setup.

Additional calculations regarding insurance premiums, home repairs and maintenance, utilities, and other costs will be factored in. These instructions are available on the 8829 tax form or via the IRS ‘Work from Home’ website.

Equipment

Office equipment like fax machines, printers, computers, furniture, and anything purchased to help people run their business can also be deducted. Nevertheless, computers are considered a “listed” deduction by the IRS, so business owners will be asked to calculate how much of the computer use is for is for business use and personal use.

Utilities

Because your rental space or owned space alike will consume an array of utilities, costs for water, gas, electric, telecommunications, and trash removal services qualify for home office tax deductions. Phone bills can be deducted completely if a business phone with a separate line is installed in the home. The costs that only affect the business end of things can be deducted at the end of the year.

Mileage and Auto Expenses

If an automobile is used to travel between two destinations, with one of those being your regular place of business, the IRS will consider this up for grabs in terms of tax deductions. Additionally, any trip made by a business owner or employee who makes a delivery to a customer or client, a trip to a vendor, travels to a store to buy a printer or fax machine, or to stop at the bank to make a deposit, all qualify as a business deduction.

Mileage rates can change from year to year, but the IRS will allow taxpayers to claim a certain amount of money per mile driven from their taxes. In addition, automotive expenses—like repairs and maintenance—can also be deducted. For mileage deductions, a detailed log of miles obtained on the car should be kept in the event of an audit.

Mortgage

A percentage of your house payment, mortgage or house insurance, property and real estate taxes are all available to be claimed for running a home office. Like other deductions, however, taxpayers may only deduct the business percentage of these figures. Portions of one’s rent and renters insurance can also be deduced. Further, any space needed for daycare to watch over children or older individuals can be deducted. Storage space for surplus and inventory can also qualify.

Deductions are very simple to make for those who own a business and operate some or all of that venture from their home. However, it is important for taxpayers to avoid stretching the truth on what they can deduct, or try to claim things that really do not affect their business. As such, it is even more so important that taxpayers keep photos and records of everything in the event of an audit. If these things are missing, a business’ defense will go out the window in the event an audit. This can cost taxpayers hefty fines, and in some very unfortunate cases, the very livelihood of their business.