Getting Comfortable with the Home Office Tax Deduction

home officeHome Office Tax Deduction

by: Eden LaLonde, CPA, MAcc

One of the best aspects of working at home is the easy commute. The second best part is it may qualify you for a tax deduction.

IRS rules require that you generally maintain a specific area in your home for use regularly and exclusively in connection with your business. What’s more, you must use the area as your principal place of business or, if you also conduct business elsewhere, use the area regularly to conduct business, such as for meeting clients and handling management and administrative functions. If you’re an employee, your use of the home office must be for your employer’s convenience and benefit.

The Internal Revenue Code provides a standard method to calculate the deduction for your home office based on the percentage of your home devoted to business use. You deduct the percentage (proportionate to the percentage of square footage used for the home office) of indirect home office expenses, including mortgage interest, property taxes, association fees, insurance premiums, utilities (if you do not have a separate hookup), security system costs, and depreciation (generally over a 39-year period). In addition, you deduct direct expenses, including business-only phone and fax lines, utilities (if you have a separate hookup), office supplies, painting and repairs, and depreciation on office furniture.

The other option is an easier way to claim the deduction, known as the simplified method. Under this method, you multiply the square footage of your home office (up to a maximum of 300 square feet) by a fixed rate of $5 per square foot. You can claim up to $1,500 per year using this method. Of course, if your deduction will be larger using the standard method, that’s the way to go.

The best advice we can offer is, “Don’t go it alone.” Contact Ciuni & Panichi or Eden LaLonde, CPA, MAcc, at 216-831-7171 or elalonde@cp-advisors.com.

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