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Sallie Mullins Thompson, CPA PLLC

Navigating Your Financial Life Through Effective Tax Strategies

Home Office Income Tax Deduction

Home Office Income Tax Deduction

| February 03, 2017

For the small business owner who works from home, the Home Office Deduction is extremely valuable.

And, with just an extra bit of time, the business owner can collect the data needed to file for this using the regular method which generally: 

  • Yields a larger dollar amount deduction (up to three times) versus the simplified method which is capped at $1500

  • Allows carryover of these expenses, if the gross income test is not met in the current year. 

The main requirement is that the home office be used exclusively and regularly for business.

  • Personal activities should not be conducted in that space.

  • The office does not have to in a separate room; it can be a portion of a room.

  • The business owner needs to maintain evidence that indicates the home is used as the principal place of business.

  • A separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business, is also eligible.

The home office or free-standing structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers. If the business owner conducts business at a location outside of your home, such as meeting space in a club or restaurant, but also uses the home substantially and regularly for business, he/she may still qualify for the home office deduction.

Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if a whole or part of a room is used for the business, one must determine the percentage of the home devoted to business; therefore, taking accurate space measurements is required.

So, why not start today to gather the information essential to take advantage of this tax savings! After doing that once, the next time is easy. Plus, my clients think it’s totally worth their time when they see the decreased income tax liability.    

The data to be gathered for the deduction is listed below. Documents/receipts/notes for the various expenses should be saved for at least 7 years – in the event of an audit.

  1. If a homeowner, need to know: Square footage of both the home and the office room/space; Date and purchase prices of home purchase; Improvements for prior and current tax years; and Mortgage interest and real estate taxes paid in current tax year.

  2. If a renter, need to know: Annual rent expense

  3. Other allowable deductions for the Home Office Deduction: Renter/property/liability insurance; Repairs and maintenance, both interior and exterior; Utilities, and Miscellaneous expenses that benefit the entire home and grounds, if applicable, such as: housekeeping; pest control; carpet/window/chimney cleaning; security systems; and homeowner/coop/common area monthly maintenance fees.