Home Office Deductions

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Running a home office means that you may be entitled to deductions above and beyond the typical business deductions. The advantage of a home office deduction , if you qualify, is that you can deduct part or all of your home that you use for business.

Unfortunately, some people make the assumption that if they have a home office or even if they work from home, they can create all kinds of tax deductions. That was true for a long time until the IRS got wise to it. People got greedy and abused the home office deduction by reporting everything from dog food to posh vacations to cosmetic surgery. There are those still pushing the envelope and they need to be careful. Sooner or later, the IRS becomes curious and starts snooping.

What Is a Home?

The IRS will consider your cozy domicile a home if it is one of the following:

  • Apartment

  • Boat

  • Condominium

  • House

  • Mobile Home

If you ask the IRS, they will tell you that there are four criteria to meet in order to qualify for the home office deduction.

  1. Exclusive Use

    To qualify for Exclusive Use, there needs to be a specific area in your home that is used only for your business and nothing else. In other words, if you run a small catering business from your kitchen, you cannot qualify for Exclusive Use because you also use that kitchen to cook the family's meals. But if you had a separate kitchen, perhaps in your basement , used exclusively for your catering business, that would qualify.

    There are, however, two exceptions to the IRS Exclusive Use guideline. The first refers to space used to store inventory or product samples. The second refers to the use of your home as a day care facility.

    If you would like to claim inventory space in your home as a business deduction, you will need to meet the following five conditions:

    • You are in the business of selling either wholesale or retail products

    • The inventory you want to claim is for your business

    • The only fixed location for your business is your home

    • The inventory space is used on a regular basis

    • Your inventory space (garage, basement, attic, shed, etc.) is suitable for storage and easily identified as storage space

    Not sure if your storage space qualifies? Let's say you sell ladies' brow shavers in a mail order catalog from your home and you store the shavers in your garage. You also house your car in this space. The garage would be deductible even though it is not used exclusively for your business.

    The IRS permits a home business deduction if you use your home on a regular basis as a day care facility. The IRS recognizes that a day care facility might be for children, mentally or physically challenged persons, or seniors over the age of 65. Before you can claim your home or part of your home as a day care facility, you must have applied for, been granted, or be exempt from having a license, certification, registration, or approval as a day care center or as a family or group day care home under state law. Obtaining a license means that your home will have to meet certain criteria for the safety and well-being of the children or adults in your home. Where can you find out about this business license? Visit or contact your local government office for the specific requirements in your area. A word of caution ”operating a day care facility without a license is a violation, resulting in steep fines and liability if someone is hurt or injured while under your care.

  2. Regular Use

    To qualify for Regular Use, you need to use the specific area on a continuing basis. You don't meet the criterium if the area is used occasionally. However, some businesses are seasonal; that is, there are months when you are not in operation, such as landscapers and pool maintenance people. As long as the area designated for work is not used for anything else, it still can qualify for Regular Use.

  3. Business Use

    If you are actively operating your business from your home, you can meet this criterium.

  4. Principle Place of Business

    To meet the requirement for this criterium, your home office must either be your principle place of business or the place you routinely meet with clients and customers.

For instance, suppose you are in the business of art restoration and your work is conducted at estates, museums, and private homes . As long as you use your home office exclusively and regularly for your bookkeeping and administrative operations, then your office will qualify.

Perhaps you are a public relations consultant with an office across town. As long as you regularly meet with clients in your home, you can deduct your home office. Caution ”your home office does not meet the criteria if it's used only to receive telephone calls or to hold occasional meetings.

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The 60-Second Commute. A Guide to Your 24.7 Home Office Life
The 60-Second Commute: A Guide to Your 24/7 Home Office Life
ISBN: 013130321X
EAN: 2147483647
Year: 2003
Pages: 155

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