The Home Office Deduction: What You Need to Know

Although individuals taking the home-office deduction are more likely to be flagged for an audit by the Internal Revenue Service, those who satisfy the various tests can save a good chunk of money through the deduction. To qualify for the tax break, they must regularly use the space exclusively for business; and if it is not a separate structure — such as a studio or converted garage — they just need a room where no other activities are performed. Among the stipulations for employees who want to take advantage of the incentive, the office must be the principal space where they conduct business or a place where they meet clients or customers; and it must be used either for the company’s convenience or rented to their employer. Those who meet these tests can deduct both direct expenses — painting the office, etc. — and indirect expenses — utilities, insurance, general repairs, burglar alarms, rent, etc. — but the latter requires them to calculate how much of the home is used exclusively for business. They must then decide whether to deduct a percentage of their actual expenses, for which they must have receipts, or a simplified deduction based on their home’s square footage. | Read More