What are the IRS rules on home office deductions?
According to IRS rules, home office expenses can only be deducted when a "specific area of your home" is used "regularly and exclusively as your principal place of business." However, if you use the home office space as a "place to meet or deal with patients, clients, or customers," even if it is not your principal place of business, you may still qualify to take a home office deduction.
That clears it all up, right?
If not, read on for more information on how each of those terms applies in the real world.
What expenses can I deduct for the use of my home office?
When you look at your home office you may see a whole room filled with equipment, furniture and shelving, that all cost you a pretty penny. And so if you qualify for a home office deduction, you are eager to deduct it all.
But when figuring a home office deduction for independent contractors, the IRS separates out those less permanent features from the space itself, though many are still deductible elsewhere. Also home office expenses are categorized as either direct or indirect, and only direct expenses are fully deductible.
Read on to find out more what is deductible and what is not.
If I qualify for a home office deduction, is it always good idea to take one?
As with anything else, taking a home office deduction has its pros and cons. Most who qualify will want to take the deduction, but you always want to be aware of the potential pitfalls such as an increased likelihood of an audit and a possible increase in your capital gains tax when you sell your home.
Read on for more information to help with this decision.
Are there special requirements for telecommuting employees' home offices?
Yes. If you telecommute and are an employee, the IRS has additional rules for you. The key distinction is that telecommuting employees must be working at home for the convenience of their employers, while an independent contractor with a home office has no such requirement.
Read on for more information of this caveat as well as filing requirements for employees.
What tax form do I use to calculate deductible home office expenses?
If you are an independent contractor filing a Schedule C, use IRS Form 8829 Expenses for Business Use of Your Home to calculate expenses for business use of your home. This form is not used to deduct office equipment or furniture, which are deducted on Schedule C, but only to calculate the deduction for use of your home.
If you are a telecommuting employee use Form 2106 Employee Business Expenses to calculate the deductible expenses, then enter the amount on Schedule A. (You must itemize in order to claim this deduction).
I am not a tax attorney, CPA or tax preparation specialist. The information here is meant as a general guide. For specific questions about your own taxes, please refer to IRS publications or consult a tax specialist.
