Do you often work from the comfort of your own home? Depending on your circumstances, you may qualify for a home office deduction that can reduce your tax liability.
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.
If you determine you qualify, what can you deduct? 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. Don’t hesitate to give us a call if you have questions about your situation.