Business Use of Home Office – Good or Bad?

Is claiming the business use of your home office a good or bad idea? In a word, “Bad!” Why? Especially when the IRS just made it simpler to claim the deduction starting in 2013. The reasons are pretty simple:

1. Suspect Entry. Suspect entries give rise to IRS scrutiny and this is one of the top suspect entries on your personal tax return. Claiming business deductions on a personal return has always generated some level of interest with the IRS but this one is towards the top of the list. There’s very little the IRS can use to verify the information without an audit inquiry so no matter how easy it is to report the deduction, it’s going to raise questions.

2. Unnecessary Information. In order to claim the entry, you’ll provide the IRS with details about you and your home. While you have nothing to hide, there is never a good reason to provide more information to the IRS when their only objective is to collect tax from you. No matter what the circumstances, they are on the opposite side of the table from you. I won’t say they’re the enemy (and in fact hold IRS personnel in very high regard) but they are not your friend and they are not trying to help you. Their job is to collect tax from you. Give them only the bare minimum of information and leave it at that.

3. Better Ways. There are better ways to get the benefit from the deduction. Incorporate your business activities, reflect the costs of doing business (which includes the use of your home for business) and report this information on a business return. Then you’re not mixing personal and business information on either return.

There is almost always more than one way to take a tax deduction. This is a perfect example of the difference between a good way and a bad way to go about it.