Home offices are often a point of confusion for our clients when tax time rolls around. Figuring out whether or not you qualify for a home office deduction is more complicated than you might think, not to mention actually calculating the deduction. Here are the basic qualifications you have to meet to be eligible for a home office deduction. We’ll also tell you a little more about how your deduction is calculated.
To qualify for a home office deduction, you must use a portion of your home exclusively and regularly for business purposes. This means that part of your home—typically a room in your home or a separate structure on your property—must be dedicated strictly to your work. This is a requirement that many people overlook, or believe to be “flexible,” but this is not the case.
As an example, let’s say that you have a small room in your home with a desk and a computer that you use for business purposes. If the entire room is used solely for your work, you can claim the room for a home office deduction. However, if your children also use the room for homework or play games on the computer, you no longer qualify for the home office deduction.
If you are audited, and the auditor can prove that the room was used for a purpose other than business, you will have to pay back the deduction with interest and penalties. This is why it is vital that you ensure your home office is never used for anything other than business.
If you qualify, there are 2 ways that you can calculate your home office deduction. The first is a “simplified” method. All you have to do is multiply a set dollar amount (chosen by the IRS) by the square footage you use for your business.
The other method is more complex, but can often yield a higher deduction. For the standard method, you will need to calculate the percentage of your home that is used for your business. You will then be able to deduct that percentage of the following types of home expenses:
Additionally, you can deduct expenses that are solely related to the running of your business, such as the following:
There is a lot that goes into calculating a home office deduction, so we don’t recommend doing it on your own.
Many people incorrectly claim a home office deduction, so the IRS keeps a close eye on these deductions. Here at The Jones CPA Group, we want to make sure that all of our clients claim these deductions correctly. We will ensure that you qualify for the home office deduction and calculate the amount of the deduction accurately so you don’t have anything to worry about.
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