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Home Office Deductions - Are They Worth the Work?

by Jean Murray on February 14th, 2009

I want to take a deduction for using my home office this year, since I’m now working full-time from home.  So I’ve been studying how to do this and I wanted to take you through the process.  Some “experts” will tell you not to bother, that the IRS makes it so impossible to do that it isn’t worth the effort.  I’m not saying it’s easy, but it is possible, if you are willing to spend the time to do the work.  If you haven’t taken the deduction before because you were either unwilling to do the work or not sure what was required, stick around.  Over the next few days, I will take you through the process you must use to generate the information to claim a home office deduction.

Let’s assume for this purpose that you are self-employed and that you are not working at home as an employee. You will be filing Form 8829 (Expenses for Business Use of Your Home) to claim this deduction.

“Regularly and Exclusively” Criteria. First, you must set aside an area in your home that is used “regularly and exclusively” for your home business.  The “regularly” part isn’t too difficult; you just have to show a pattern of use (every day, every week, every month).  But the “exclusively” is pretty tough.  As I understand it, you must not do any other work in the area.  (Daycare facilities don’t have to meet the “exclusively” test.)  One example that’s given is the dining room, where you have all your work stuff laid out.  If the room is used once a year for Thanksgiving dinner, it’s not “exclusively” used for your business.

The IRS is tough on this point because otherwise people would take advantage of the situation and pull out their business stuff only when the IRS auditor came around (and, yes, they can come to your home to see if your claim for this deduction is legitimate).

To figure what percentage of your home is used for your business, divide the square footage of the home office area by the total usable square footage of the home to get the percentage.  Let’s say your home is 2500 square feet and your home office area (a room or part of a room) is 250 square feet.  Your office is 10% of the total square footage of the home.  Hold on to this number, because you’ll need it for the next part of the calculation.

Tomorrow, Part II - What home office expenses you can deduct.

Image source: Stockxpert

Tags: , home office deduction,

POSTED IN: Laws & Regulations, Laws & Regulations, Taxes, Uncategorized, home business tips

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