How to qualify for a home office deduction

Taking a home office deduction has triggered many an audit for American taxpayers,
so it�s important to understand the law and know if your home office qualifies for
the home office deduction.

Best of all, you can prepare yourself before you even start your home business so
you can get every penny possible back.

What is the home office deduction?

The more people work at home, the most often they try to claim a home office
deduction on their income taxes. The home office deduction allows taxpayers who
work at home and maintain a home office to get a significant reduction in income
taxes, as long as certain standards are met.

What are the criteria for the deduction?

There are three primary criteria you must meet to take the home office deduction.
For someone operating a work at home business, the first one is the hardest to
meet.

The first criteria that the IRS uses to determine if you are eligible for the home
office deduction is the question of how the space is used. To qualify, you must use
your home office exclusively for your home business. If you use a corner of the
family room for the home office, this can be hard to prove.

When the IRS talks about exclusive use, it means exclusive and regular use. That
is, the only activities that should take place in the space should be those related
to your business. You should only conduct work activities there. If the kids use
the computer for gaming, or you pay bills at your desk, or print family menus
there, it doesn�t qualify.

As well, the home office should be used regularly for your home business. Let�s say
you primarily work on a laptop in your car but your home office is your home base.
But if you rarely actually use that home office, you likely won�t be able to claim
it on your taxes as a home office deduction.

If you run a daycare from your home, there is an exception given to the exclusive
use criteria because while the home is used regularly for business, it�s not used
exclusively for business.

The second criteria concerns why the home office is used as a home office. That is,
if you work from home at your own business, you will meet this criterion. Most home
businesses will meet this particular point, but if you work for an employer and you
sometimes work at home, it can be hard to prove this particular requirement,
especially if the employer also provides an office or space for you to work away
from your home.

The third criterion applies to people who have more than one home business. If you
have more than one home business, every single one of them must qualify for the
home office deduction in order for you to take the deduction. That is, if one of
the businesses does not qualify, but the others do, you can�t take the home office
deduction on any of them.

What can you take?

When you qualify for the home office deduction, you can get tax deductions on the
portion of your house that is used as a home office; for example, if you use 200
square feet for your home office, and your home is 1,600 square feet, you can get
credits for 8 percent of the utilities, property taxes and other expenses related
to your home.

In addition to the home office deduction, you can still take regular business
deductions, like those for supplies, phone lines, internet service and the like.

How to make home office deductible

If you work at home full time, it makes sense to take some time figuring out how to
create an environment that lends itself to taking that home office deduction. If
your desk is in the family room, but you use it exclusively for the business,
consider partitioning off the part of the room that is just for your business. That
way, you create a home office that is used exclusively and regularly for your home
office.

In addition, keep all receipts for computer purchases, furniture purchases and any
other purchases that are used for your business. All of these are deductible in
addition to the home office.

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