If you are self-employed and work from your home, or even if you are an employee who works from home, you may be able to claim a portion of your home expenses on your income tax return.
Requirements
The IRS (Internal Revenue Service) has a number of regulations concerning this:
Principal Area of BusinessThere must be an area of your home that is used as your principal area of business. Some of the business activities that are considered to be eligible are:
- Meeting and dealing with patients, customers or clients
- Billing operations
- Setting appointments
- Bookkeeping
- Administrative duties, such as ordering supplies
- Storage area
- Showroom
Administrative Duties
In order to qualify, you must not have any other place that you can perform administrative functions. For example, you are not able to rent an office space and then choose to sometimes work from home and sometimes work from your office, claiming both on your expenses.
Your Office Can Be in Your Garage
You can claim a separate structure on your property. For example a guesthouse or garage, on your property that you use for an office, this would also qualify as a home office, provided the other conditions are met.
Must Be Exclusively Used for Business
The area that you are claiming for home office use must be used exclusively for this purpose. You may not claim your den as a home office if your den is also used by your children to complete their homework or your spouse while they are working on home management activities, such as paying bills for your home.
When You Work from Home as an Employee
For employees claiming home office use, the area you are claiming must meet the requirements as listed above. In addition, you must be working from home as a convenience for your employer. Working from home because it is easier for you is not considered an allowable deduction.
Required Tax Forms
For self-employed individuals
IRS Form 8829 must be completed. The amount indicated on this form must be reported on your Schedule C when submitting your taxes.
For employees
Worksheet in IRS Publication 587, Business Use of Your Home. The amount on this worksheet would be included in allowable deductions on Schedule A of your tax return.
There are limitations to claiming a home office. For example, if your business expenses plus your home office will be more than the income you received from your business, you will not be able to claim the entire amount of expenses relating to your home office.
Also, claiming a home office deduction can increase your chances of an IRS tax audit. If you are not sure whether your home office would qualify, talk with a tax professional about the pros and cons of claiming this space on your tax return.
For Further Information:
Tax Audit Flags for Home Businesses
Tax Audit Flags for Small Businesses
Eileen Bailey - Eileen Bailey is a freelance writer. She began her writing career almost 20 years ago writing marketing material and sales presentations. ...
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