Ahhh… The smell of tax season is in the air!
For those of you who have recently started a home business, or are telecommuting for an established company, you may be looking forward to claiming home office tax deductions on your next return. But there is a good chance that you do not even qualify for these deductions.
The following is a brief outline of the requirements and restrictions that must be fulfilled to receive home office tax deductions. For more information, you should consult “Publication 587: Business Use of Your Home,” put out by the IRS, as well as your tax consultant.
In order to know if you qualify for home office tax deductions, you need to consider the following questions:
1. How do you use the space in your home where you conduct business?
In order to qualify for a home office tax deduction, the part of your home that you work in must be regularly and exclusively used for business purposes. This space must fulfill at least one of the following three options:
1. It is your principal place of business. A factor that defines your home office as the principle place of business (even if you operate from other locations), is that it is the space where you exclusively perform managerial or administrative activities, such as billing, ordering supplies, or making appointments.
2. It is the location where you generally receive clients or customers.
3. It is a separate structure, such as a detached garage.
There are two exceptions to the requirement that your home office is used solely for business purposes:
1. You operate a licensed day care center in your home.
2. You store inventory or products for sale in your business.
Here personal use and business use may be mixed. If you are storing inventory, then keep in mind that you can only have mixed use of the area you use for storage if you do not have any other business location besides your home.
2. Are you a telecommuter?
If you are currently employed by and another company, but are working from home, then there are two additional requirements that you must fulfill to claim a home office tax deduction:
1. You must work at home for your employer’s convenience. This means that your employer does not provide office space, as can be the case with a telemarketer or call center operator.
2. You also can not be renting any part of your home to your employer and then using this space for service of your employer.
What is the Definition of Regular and Exclusive Use?
In order to qualify for the home office tax deduction, you need to be sure that you are fulfilling the requirement of regular and exclusive use of your home work space. To fulfill the “regular” requirement, the space must be used continuously, not just on occasion.
To fulfill the “exclusive” requirement, aside from the two exceptions mentioned above, you need to be sure that there is absolutely no mix of personal and business use. So, for example, the phone in your home office cannot be used for personal calls, nor the computer for personal emails. A consultant who meets clients and performs administrative activities in his dinning room, or in any room that has other uses, will also not qualify for a home office tax deduction.