I Work From Home – Can I Take a Home-Office Deduction?

How many times have you told your boss you’re working from home and won’t be in the office? Are you working at home, or are you watching B-rated movies on cable and checking your email on your smart phone? If you are in fact working, can you deduct the expense of a home office from your taxes? The IRS has a pretty stringent set of rules for deducting the expense of a home office. Most of us that occasionally work from home don’t qualify, but if you truly conduct business out of your home, you may be able to save a bundle in taxes.

How Does the IRS Define a Home Office?

In order for any space in your house to qualify as a home office, the space must pass the following tests:

  • Is the room used exclusively for business on a regular basis? This means that the entire room must be used for a business purpose. You cannot utilize the room for any other purpose. So, if your office also doubles as the TV room, you will not be able to deduct the expense of this space.
  • What role does the room or space play in your business? The room must be your principal place of business. If you conduct a substantial amount of administrative or managerial activities in the room, it may qualify as a home office.
  • Is the space used for the convenience of your business or for your own convenience? This test applies only if you do not operate your own business but are an employee of another company. You must demonstrate that your home office benefits your employer and not just you.

If your home-office space meets these requirements, you may be eligible to take the home office deduction.

What is the Amount of the Deduction I Can Take?

The IRS allows you to choose from two different options when calculating the dollar amount of the deduction you can take for your home office.

  • The Regular Method – With the regular method, the dollar amount you can deduct generally depends on the percentage of your home that is used for business. You must determine and document the actual expenses incurred yearly. This method can be complex and burdensome, but if you have a significant amount of business expenses, you may want to endure the inconvenience because the regular method may allow you to take a larger deduction.
  • The Simplified Method – This method basically allows you to take a standard deduction of $5 per square foot of home used for business, not to exceed 300 square feet. It’s much easier to calculate, but you may lose out on some deductible expenses.

And remember that these are the IRS guidelines that apply when you claim the information on your personal tax return using Form 2106. Things get lots clearer, and simpler if you have a business entity and address the home use there.

Determining whether you meet the IRS guidelines required to take the home-office deduction can be complicated. The professionals at Nielsen Law Group can assist you in calculating your deduction and preparing the appropriate forms to claim the deduction. Call (480) 888-7111 or submit a web request here.