Resolved! 12 Burning Questions About Home Office Deductions
If you’re a home-based worker, tax time needn’t cause angst.
The author of “Julian Block’s Home Seller’s Guide to Tax Savings” untangles this intricate deduction.
Office Setups: What’s OK?
Anywhere, so long as it meets the primary rule in : You must use the space exclusively and on a regular basis for your business, and it must be your primary place of business. If that’s the case, put up a partition in your living room, turn a closet into an office, set up a TV tray over your bathtub.
If your studio is your principal place of business, and it’s used exclusively and on a regular basis, then you qualify. of the Internal Revenue Code provides guidelines. You don’t have to work full-time.
A separate structure is easy for the IRS to identify as a qualifying home office, as long as you use it regularly and exclusively for business. If you use to take actual expenses, you can depreciate the entire cost to build a separate office structure.
Partitioning or physically defining your home office in some way is helpful, but not required by the IRS in determining if your space is a home office.
Sorry, no home office deduction for you. But you may depreciate your laptop (and other business-related equipment) on . Or, claim “first-year expensing,” which may allow you to write off the entire cost of your equipment at once.
Deducting Utilities and Upgrades
Good question — especially if you’re this guy! Deduct utility costs as a percentage of your total utility bill if you use Form 8829. For example, if the square footage of your office equals 10% of the total square footage of your home, you can deduct 10% of your total utility bills. If you use the simplified home office deduction ($5 per square foot up to 300 square feet or $1,500), you can’t also deduct your home office utility costs.
It’s not a deductible expense; rather, it’s depreciable. The cost of building a separate entrance gets added to the cost basis of your home. For a look at how depreciation is figured, check . (Note: Depreciation isn’t relevant if you take the simplified home office deduction.)
Probably not, unless the maintenance is connected to your work. If you have a landscaping design business, then maintenance may be essential to your livelihood, and a portion might be deductible. Consult your tax adviser.
Each business must file its own Schedule C, but only one of you can take the deduction for the home office space.
If your main place of business meets the regular requirements for exclusive, regular use, then the deduction still applies when you work while traveling, or do some tasks from a fixed location other than your home.
The storage space you claim for a deduction must be separately identifiable and suitable for storage. So even if you work outside the home sometimes, your home must be the only fixed location of your business and you must use the storage space regularly. Storage space expenses are deductible even though you don’t use this part of your garage exclusively for business.
The general rule to qualify for the home office deduction is “regular and exclusive use” of the space. But a home-based day care is an exception: It must be used regularly, but not exclusively.
Let’s say you use 50% of your home as a day care 8 hours a day and five days per week. And say that all your relevant expenses (utilities, insurance, etc.) add up to $1,000 for the year. Here’s your formula:
Expenses multiplied by (work hours per week divided by number of hours in a week) multiplied by the percentage of the home you use
($1,000 x (40 / 168) x .50) = $119
Finally, you must also meet all necessary licensing requirements to operate a day care.