May 30, 2017 | Posted in:

Reduce Tax Liability with the Home Office Deduction

Alloy Silverstein’s Tax Tip of the Week

Whether you are working each day to grow your freelance or direct sales business or you are a remote employee for a corporation, working out of the comfort of your own home has been a growing trend in the American workforce. A recent Bureau of Labor Statistics study revealed that 24% of workers report working from home each year.

If you find yourself in this 24%, you may qualify for the home office tax deduction, which can aid in reducing your tax liability. While the IRS has a number of strict qualifiers in place to determine your eligibility for the deduction, the payoff and tax savings can be well worth the additional work.


Home Office Deduction: Am I Eligible?

The tax law says you can claim a home office deduction only if you use at least part of your home exclusively as either (1) your principal place of business or (2) a place to meet or deal with customers, clients, or patients in the normal course of business. Furthermore, if you’re an employee of a company, the home office must be specifically used for the convenience of your employer.

In other words, if you’re a self-employed cabinetmaker and use your garage strictly for woodworking and storing tools, it’s likely that you will qualify for a deduction. Conversely, if you work in your den on nights and weekends but you have a main office in town, you won’t qualify, especially if you’re a corporate employee. Other examples could be an in-home daycare business, a mini salon setup in your house for cutting and styling customers’ hair, or a dedicated storage room or area for inventory or product samples.

“Any nonbusiness use of the space means it does not qualify as a home office,” adds Manager Julie Strohlein, CPA. ” If you run your business from your dining room, but also use it for a few family holiday meals, it does not meet the exclusive use test.”

Home Office Deduction: What Can I Deduct?

If you determine you qualify, there are several considerations for deduction. The write-off includes expenses directly related to your home office and a proportionate share of the overall expenses of maintaining a home. For example, if you paint the room you use as a home office, the cost is completely deductible. However, deductions for property taxes, mortgage interest, utilities, and the like are based on the percentage of business use of the home. (The remaining property taxes and mortgage interest are generally claimed as a personal deduction.) Finally, you may also claim a depreciation deduction for the home office, based on IRS tables.

To simplify matters, the IRS permits you to deduct a flat rate of $5 per square foot of the area used as an office, up to a maximum of $1,500. However, for most taxpayers, keeping detailed records of your actual home office expenses will produce a larger deduction.

Per Julie, keep in mind that “home office expenses must be deducted in a specific order and may be limited based upon the gross income of the business activity.”

Determining eligibility and calculating the correct write-offs can get complicated quickly. If you’re not confident that you fit the home office deduction eligibility criteria, or require a CPA’s assistance, don’t hesitate to call us if you have questions about your situation.


IRS Chart: Can You Deduct the Business Use of the Home Expenses

IRS Chart: Can You Deduct the Business Use of the Home Expenses

© MC 2017 | “Tax Tips” are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.


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