A To Z Of Home Office Tax Deductions

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A To Z Of Home Office Tax Deductions

If you have a home-based business you can save money by availing home office tax deductions. The IRS allows you to save money on insurance, mortgage, repairs, and other utilities if you have an office at home. Home office deductions are applicable for all kinds of homes irrespective of apartments, flats, and even mobile homes. So if you are wondering how to claim a home deduction this article will provide you with all the basic information.


Requirements for home deductions

The internal revenue service or the IRS has created certain specific requirements that must be met with to claim home office deductions. They are as follows:


  1. Regular use: For you to claim home office tax deductions you have to work from your home on a period of over two years.
  2. Exclusive use: You can also be eligible for home office deductions if you use your home exclusively for work. You can either have a separate area for work or a room within your house but it must only be used for work-purpose.
  3. The principal place for your work: Your home must serve as a principal area for your work. You cannot claim tax deductions if you use your house occasionally for the purpose of your business. But even if you have another office at some other location but use your house regularly for client meetings and other administrative and executive purposes you can easily be eligible for home office tax deductions.
  4. What percentage of the house is being used: Another requirement that will decide the deductible amount is what percentage of the house is being used for work. So before you file your house deduction claim you need to understand what percentage of the house is used for work if you are using more than one room or only a portion of a room as your home office.


Rules for employees

The IRS has specified a couple of other rules for employees claiming home office deductions. So if you are an employee in addition to the above-stated rules you would also have to comply with these other criteria.


  • For an employee looking for home deductions, he must show that he's working from home is actually more beneficial for the employer. You can easily claim home office deductions if your office does not provide any space for you to work in their location and you have to work from home. However, the IRS does not have any specific rules to judge if your work is actually beneficial for your employer. They base their decision on facts and circumstantial information.
  • You cannot be eligible for tax deductions if you rent a part of your home to the employer and use that part to work for that same company.


What can you save

Filing for a home office tax deductions can reduce your tax bills considerably. If you meet all the required compliance criterion you can easily save a lot by home tax deductions. The IRS will deduct mortgage insurance, rent, repair, real estate taxes, depreciation and any other type of utilities.


However, your deductible amount will depend on the percentage of the house you are using for your work.


Also if your income is lesser than the expenditure incurred for your business your deductions will be constrained.


How to file your claim

If you are thinking of claiming your home office deductions and you are meeting all the compliance criterion you can easily reduce a considerable portion of your tax bills. Here is how you can claim your home office deductions.

 

Self-employed: For those who are self-employed and using their homes as the office they have to fill Form 8829 to understand the amount of deduction they will be eligible for. Then this amount has to be stated in Schedule C.


Employees: Employees have a different procedure for filing home office deductions. If you are an employee you can calculate your deductible amount using the worksheets of IRS publication 587. Once you have calculated your deductions you can then claim them as itemized deductions on Schedule A.


These are the basic information that one needs to know and follow to file a home office tax deduction. Successfully filing your claim can easily reduce a considerable amount of tax burden from your shoulders.

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