Does your home office qualify for a deduction?
Four criteria to determine if it qualifies
You’ve decided to go into business for yourself. You have a solid business plan and the necessary capital to get up and running, but where should you base yourself?
How about your home? If this option is feasible, you may be able to deduct some home office expenses. Your workspace doesn’t have to be an actual office, only a defined space you use for business. According to the IRS, your workspace must meet four tests to qualify for the home-office deduction:
1. Exclusive use. Your home office space must be used for only your trade or business. No personal use of the area is allowed.
2. Regular use. You must use the area regularly and on a continuous basis.
3. Trade or business use. You must use the area in connection with a trade or business.
4. Place of business. The area must be your principal place of business or the place where you regularly meet or deal with customers. Using the space for administrative or management functions typically qualifies too, even if a significant portion of your work is done in the field.
If your home office qualifies for the home-office deduction, work with your tax advisor to calculate how much you can deduct. (Bear in mind that this deduction will affect this year’s tax filing and next year’s tax planning.)
Begin by listing your expenses. If you’re self-employed, you can deduct 100% of expenses directly related to the home-office space, including your telephone line and utilities (if you have separate hookups), painting and repairs, and the cost of an insurance rider on your home-owner’s policy.
You can deduct only the portion of home-related expenses that pertain to your home office, not the full amount that applies to your entire residence.