Self-employed individuals often work out of their own home. If this is
the case with you, here’s a primer on home office tax expenses you can
claim on your taxes.
Home Office Tax Expenses
America is a country built on small businesses. Yes, the big companies
are the darlings of the media, but the guts of our economy are the
little guys pursuing the American Dream from the extra bedroom.
Fortunately, the tax code contains deductions tailored to help cut your
tax bill.
When claiming home office tax expenses, it is important to keep a
receipt for each and every amount you are claiming. When dealing with
the IRS, receipts are your ammo. Keep them at all costs.
When maintaining a home office, taxpayers often wonder how they
differentiate a business expense from a simply home expense. The key is
the square footage. Simply divide the square footage of your office by
the total square footage of the home. This number is typically
represented by a percentage such as 20 percent. Put another way, the
home office represents 20 percent of the square footage of the house.
Once you have the above answer, you can multiply it by the total yearly
amounts paid for rent or mortgage interest, insurance, maintenance,
utilities, taxes, depreciation of the home and repairs. Each of these
home office tax expenses figures can then be deducted.
In addition to the above, you can also deduct expenses completely
related to the business. For instance, the purchase of a desk for the
office is entirely attributable to the office and can be deducted in
full.
Words of Caution
There are some limitations to home office tax expenses. If you are
reimbursed by an employer for various home office expenses, you cannot
also claim those expenses as a tax deduction. Sorry, no double dipping.
For some time, there has been an urban myth that the Internal Revenue
Service keeps a close eye on home-based businesses. This may have been
true ten years ago, but is clearly not the case today. To this end, the
IRS has actually come out and issued clear statements to the contrary.
Do not fail to claim home office tax expenses because of a fear of an
audit. It is simply not a rational fear!
Running a small business can be both stressful and incredibly
gratifying. Make sure you claim home office tax expenses to help your
cash flow.
