It is getting close to April 15th. Have you thought out how to itemize your taxes if you work from home or have an office in your home. The income tax deduction for home business is actually several different deductions. You will need to complete IRS Form 8829 Expense for Business Use of Home and itemize your deductions. Keep in mind that since you will be itemizing you can always be audited by the IRS. Accurate record keeping is a must and only claim the credit if you actually qualify. To determine if you qualify, the home office must be used regularly and exclusively for business. In other words, if you have an office at another location and only use your home on occasion, you cannot claim the home office deduction. Your office must be used only for business purposes. The exception would be a home daycare where areas that are used for the child care can be calculated, even if they are also used for the family.
If you qualify for the home office deduction you are probably wondering what can be claimed. If you do not own your home you can deduct a portion of the rent, and if you do own your home you can claim the mortgage interest and taxes as well as depreciation on the house. Also, the portion of the utilities, services, insurance, repair, and decorating used for your office can also be claimed. This would include heat, electric, trash disposal, a maid or cleaning service, as well as a security system. If it is a direct business expense, meaning used only for the office, than you can claim 100%. When it is an indirect expense, meaning you use electric in the entire home and the office, you can only claim a portion of it. Likewise if you only use something for personal use, then it cannot be claimed for businesses purposes at all. So, if a maid cleans your house twice a week but does not go in the office, than you would not be able to deduct any of the cost.
The amount of the deduction depends on the percentage of your home that is used for the business office. If your office is located in an entire room an easy way to find the percentage is to divide one by the number of rooms in your home. So if you have four rooms and one of them is an office you are can claim 25%. But if you have 10 rooms and only one of them is an office you would only be able to claim 10%. Another easy way to find the percentage is to take the amount of square footage used for the office and divide it by the square footage of your home. So, if 200 sq. ft. is used for the office and your home has 1800 sq. ft. you can claim about 11%.
If you are entitled to income tax deduction for the home business, don’t be afraid to claim it. Just remember to keep meticulous records in case you are audited. For more information about home businesses check out IRS Publication 587 Business Use of Home.
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