If you work at home, you’d probably like to take a tax deduction for your home office. Here’s an overview of what qualifies.
The first requirement is that you have a part of your home that you use regularly and exclusively for business purposes. It doesn’t have to be a separate room, but it must be a clearly defined area. The exclusive use is very important. The area must be reserved only for business use; if you also use it for personal activities, it won’t qualify. The only exceptions are if you store business samples or inventory at home, or if you run a home daycare business.
The other requirement is that your home office be any one of the following:
* Your principal place of business. That’s the place where you conduct most of the management and administrative activities of running your business. You may travel to meet customers, or perform operations in a hospital, but your principal place of business is where you do most of the work of actually managing your business.
* A place where you regularly meet customers, clients, or patients. Even if you run the business from elsewhere, a home office can qualify if you regularly use it for meeting with customers, clients, or patients.
* A separate building, not connected to your home. A freestanding garage or studio will qualify if it is used in your business.
If you have an area of your home that qualifies, you can generally deduct a percentage of your total costs, including mortgage interest, insurance, taxes, and utilities. The percentage is calculated as the area used for business divided by your home’s total area.
The rules on home offices are complex, with many gray areas. Contact our office if you need more information or assistance.
David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.