Because Home Office deductions can be used to lower your tax liability, considerably, the IRS often times reviews these types of returns for audits. The best way to ensure that you will be OK, if the IRS decides to ask questions, is to keep accurate and GOOD records. If you do this one task, you can help protect yourself, not from an audit, but from the IRS being right in an audit.
Read what the IRS has said and know that you CAN deduct a Home Office, even if you have an Employer.
Our advise is that you employ a tax professional who has experience in Schedule C tax returns. Its not enough for a Tax Preparer, CPA, Enrolled Agent or Tax Attorney to have experience in Corporate or Individual tax returns, they need extensive experience in Schedule C tax returns.
Home Office Deduction: a Tax Break for Those Who Work from Home
1. Generally, in order to claim a deduction for a home office, you must use a part of your home exclusively and regularly for business purposes. In addition, the part of your home that you use for business purposes must also be:
• your principal place of business, or
• a place where you meet with patients, clients or customers in the normal course of your business, or
• a separate structure not attached to your home. Examples might include a studio, workshop, garage or barn. In this case, the structure does not have to be your principal place of business or a place where you meet patients, clients or customers.
2. You do not have to meet the exclusive use test if you use part of your home to store inventory or product samples. The exclusive use test also does not apply if you use part of your home as a daycare facility.
3. The home office deduction may include part of certain costs that you paid for having a home. For example, a part of the rent or allowable mortgage interest, real estate taxes and utilities could qualify. The amount you can deduct usually depends on the percentage of the home used for business.
4. The deduction for some expenses is limited if your gross income from the business use of your home is less than your total business expenses.
5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. Report your deduction on Schedule C, Profit or Loss From Business.
6. If you are an employee, you must meet additional rules to claim the deduction. For example, in addition to the above tests, your business use must also be for your employer’s convenience.
