Guest post by Mariette Knoblauch of Ballard Beancounters
In the economic chaos of the past few years, many people have turned to self-employment. If you have a home-based business, you may very well have a home office, and a convenient deduction on your federal income taxes.
What makes a home office deductible?
There are several combinations of criteria that qualify.
Regular and exclusive use for business.
The area must used only for your business. It can’t be your kitchen table, no matter how much work you do there. It doesn’t have to be an entire room with walls and a door, just a separate identifiable area that isn’t used for anything else.
Principal place of business.
This is either the place you spend the greatest amount of time doing your work,
or
If you do the kind of work that’s performed at client job sites (like this intrepid anæsthesiologist), it’s where you do administrative tasks for your business such as invoicing, paying bills, (and filling out Form 8829 for your home office deduction), and you have no other place available to do these activities.
If you meet clients or customers in your home, an office that you use exclusively and regularly for that purpose can be deducted, even if it’s not your principal place of business and you have another office somewhere else.
If there is a separate structure on your home property, such as a free-standing studio or garage, that you use exclusively and regularly for your business, it can be a home office even if it’s not your principal place of business. (Why not put up a yurt in your backyard?)
Or, if you are a wholesale or retail seller who stores inventory, it doesn’t even have to be exclusive use. As long as you don’t have any other place to keep your items, wherever you keep your not-yet-sold products can be a home office.
To figure the deduction, measure the square footage of your office space, and divide it by the total square footage of your residence to get the percentage of your home expenses that will be deductible. Homeowners can take a percentage of mortgage interest and real estate taxes (the rest goes on Schedule A as usual), and renters can deduct a portion of their rent. Other partially deductible expenses include utilities and insurance. Homeowners can also take depreciation expenses – talk to your tax person about this.
Another often overlooked bonus of having an office in your home is that just about every place you go for work is business mileage. There’s no commuting exception for the first and last trip of the day. Going to see clients, vendors, business prospects, delivery, even a trip to Staples to buy more toner – it’s all business mileage the minute you leave your driveway.
Bruce here:
I want to Thank Mariette, who sent this in to help keep the blog going while I am doing tax work. Thank you very much for the post.
© 2011, Bruce Mc. All rights reserved.
