The home office deduction is one you don’t want to pass up if you’re eligible. The IRS recently offered taxpayers some tips on taking advantage of the deduction. Here’s what you need to know.
First, in order to be eligible, you must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.
Second, you must use your home as your principal place of business. It doesn’t have to be the only place you conduct business — for example, if you meet clients outside your home but perform your work in your home office, you can still claim the deduction. You can deduct your expenses for the part of your home used exclusively and regularly for business.
Two Options for Calculating the Deduction
You have two options for calculating your deduction: the simplified option and the regular method.
To use the simplified option, multiply the square footage of the area you use exclusively for business by $5. The maximum is 300 square feet.
To use the regular method, you’ll need to keep track of the expenses associated with keeping your office, including your mortgage interest, insurance, utilities, repairs, and depreciation. Then multiply the total by the percentage of your home that you use exclusively for business. You can use Form 8829 to calculate your deduction by this method.
If you’re an employee working from home, you may also be able to claim the deduction if you work from home for the convenience of your employer. More employees are falling into this category as more companies go “virtual” with distributed teams. If you qualify, you’ll claim the deduction on Schedule A, Itemized Deductions.
Note that if your gross income from the business use of your home is less than your expenses, your deduction may be limited. You’ll need to contact a tax professional for guidance.
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