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What is the Home Office Tax Deduction

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The home office tax deduction is a tax benefit offered to taxpayers who use their home office regularly and exclusively for their business needs. This deduction is easiest for self-employed taxpayers to take advantage of, though it is possible for employees who work both at an office and from home to use it as well. This benefit allows the taxpayer to deduct a percentage from many of the costs for running the home, including insurance, rent, depreciation, utilities, and more (assuming, of course, that the requirements for the deduction are met).

Qualifying for the home office tax deduction

The main requirement to qualify for a home office tax deduction is that the taxpayer must use his or her home office regularly and exclusively for business purposes. The IRS does not give a specific definition for what qualifies as "regular use", but the premise is that the office must be used on a continuing basis - the taxpayer cannot simply fill out paperwork here and there in a home office and have it qualify for a deduction. The "exclusive use" portion of the requirements means that the home office must be used strictly for business purposes; if it is split between personal and business use, this will fail the exclusive use test. The other requirement to qualify for the home office tax deduction is that the taxpayer must be able to demonstrate that the home office is used as the principal place of business. However, there are there are two exceptions to this rule:

  • if the taxpayer meets clients, customers, or patients at home, or
  • if he or she uses a separate structure on the property specifically for business purposes.

Claiming the home office tax deduction

If the qualifications for a home office tax deduction are met, a taxpayer may apply for the benefit using IRS form 8829 to determine the amount of the deduction, and Form Schedule C to enter the total amount of the deduction. Certain actions may be taken to help prove to the IRS that the taxpayer qualifies for the deduction, including:

  • having business mail sent to the home
  • having a separate phone line in the house that is used for business matters
  • using the home's address on all stationery, business cards, and in any business ads
  • having clients and customers visit at home, and keeping a log of all such visits
  • keeping a log of the time spent working at home

For the most complete information about the home office tax deduction, consult with a tax professional. Their expert advice will guide you as to the feasibility of the deduction, and the amount you are eligible to deduct.

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