Should I Use the Home Office Deduction?

If you own a business and meet the requirements set by the IRS, you definitely should use the Home Office Deduction on your tax return.  Using the Home Office Deduction has gotten a bad rap somewhere and taxpayers are afraid to use it because they are worried it will trigger an audit.  Taking the Home Office Deduction generally will not trigger an audit.  There were changes made in the late 1990s which made it easier for taxpayers who work at home to qualify for these write-offs.

To qualify to use the Home Office Deduction, IRS Publication 587 states the office must be:

*Exclusively and regularly as your principal place of business 

*Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business;

Exclusive Use:

A portion of your home must be used exclusively and regularly for your business.  It can be an office in a separate room or group of rooms.  The Office can be sectioned off in a room, as long as there is a clear division and you need to be able to prove that personal activities are excluded from the business section.

The IRS is very serious about the Exclusive-Use.  If you do crafts or any personal work in your office, you cannot use the Home Office Deduction.  However, this doesn't mean that no one but you and your clients can come into the office to visit with you for a few minutes.  As long as your personal activities do not invade your home office any more than they are permitted at an office building, you are ok.

Regular Use:

There isn't a clear definition of what constitutes regular use.  Keep these tests in mind:

*If you use a room only occasionally and the use is incidental to your business, this would not be Regular Use.

*Use the Home office a few hours or so each day.

*If the IRS challenges this, they use the above two circumstances in each case.

Principal Place of Business:

There are two requirements for this test:

*It is the principal location of your business or

*It is where you regularly meet with customers or clients.  

Now you know how to claim the Home Office Deduction.  In the next blog, we will look at how to calculate the Home Office Deduction.

Candace Stevens, CEO/President of

Number Cruncher LLC

cstevens@numbercruncherllc.tax

www.numbercruncherllc.tax