Home Office Deduction

 

You have a home office, and you wonder what deductions you can use. The answer is it depends on how much of a home office you have and if you have a home office. Most small businesses are working from their homes. There are many benefits from working from home especially for service-based businesses like virtual assistants, business coaches, etc. Working from Home decreases your overhead tremendously, not to mention the savings on transportation cost. There are also tax benefits from working from home, and you may be able to take advantage. You know with everything else, the IRS has rules for the home office deduction.

Before you get happy, there are restrictions on whether you can take this deduction. There are two important qualifications that your home office must meet regular and exclusive use and principal place of business. Well, What the heck does that mean right?

First, we must identify if you have a home office.  The IRS recognizes a home office by regular and exclusive use and if it is your principal place of business. IRS Publication 587 explains this more in detail.

What do they mean regular use? Is your business conducted mostly from your office? Let’s use Virtual Assistants as an example. Virtual Assistants meet with clients over video via Zoom, Google, Skype, etc. These meetings are usually conducted from a home office space although they can be held anywhere the couch, the kitchen counter, the sun room, a porch, the list is endless. Most virtual assistants,  perform the Majority of their work in their home office. Even if you meet clients at co-working spaces or Panera Bread etc., it is OK because you ultimately return to your home office to prepare documents, send emails, make calls and conduct normal business and that is why the IRS considers this as regular and exclusive use and principal place of business.

If your office space is also used as storage and you can’t even get to the desk, this is not regular use. Also, to be considered a home office it cannot be used for anything else like your den that is your office during the day and the family room at night.  

For Example, I have an office space in my basement with a desk computer, monitors, chair, printer, webcam, etc. BTW I love my office.  I do the majority of my work from my office I have video meetings there. Client meetings etc., My office is just that MY OFFICE no other person shares that space, other than my dog who thinks I store snacks on my desk. However, I may also meet clients at other locations like a coffee shop, Panera Bread, a co-working space, etc.

Just because you meet clients outside your home office does not mean you cannot take the deductions. You can take the deduction if you use your home office regularly, exclusively and it is your principal place of business.

HOW TO FIGURE OUT THE DEDUCTION

Measure your office space to determine the percentage of use. Use the percentage to determine the amount of your household expenses that can be deducted. Example if you find that your office is 15% of your home then you are allowed to take 15% of your home expenses for your business deduction. The percentage method is just one method. Talk to your accountant or tax professional to determine what you qualify for and which method is best for you. You can find the most up to date information regarding this subject here.

This is for informational purposes only and should not be used as legal advice. Before making a decision regarding your business finance, please consult your Accountant, Bookkeeper or Tax Professional.

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