The economy has been consistently downbeat with an unusually high unemployment rate across the nation for years. This has lead many people to consider home businesses. One of the many fringe benefits to home business expenses is that they can often be used as a tax deduction. Bonnie Lee has reported for Fox Business “What and How Much of Your Home Office Can be Deducted.” A primary consideration taxpayers need to know in setting up a home business is that the space must be used exclusively for business purposes. The space must also serve as a principal and regular place of business to meet with customers, clients, or patients.
To avoid having your home business deduction questioned or partially or completely disallowed there are more details to the tax code which you may have to follow. You must comply with IRS regulations as outlined in Publication 587, which is available online at IRS regulations. If you are taking a home office deduction and you are audited the auditor may want to see the home office. It is possible to avoid such a home office visit by providing a video of the space, including a video of someone taking the measurements.
IRS form 8829 is used for home office deductions. You can deduct 10% of the following costs if the total square footage of your home is 1,000 and the square footage of the home office is 100: “1) Mortgage interest or rent, 2) Property taxes, 3) Homeowner’s or renter’s insurance, 4) Utilities – gas and electric, water, garbage disposal, propane, 5) Cleaning expenses such as housekeeper, carpet cleaner, etc, 6) General household repairs, 7) Telephone, if not a dedicated business line. If the only phone line is the home phone, the IRS will allow the home office percentage against the total phone bill 8) Depreciation of the home office and all major capital improvements that affect the home office (e.g. new roof, hot water heater).”
Bonnie Lee’s impressive review of the matter of home business deductions offers a great incentive to consider developing a home business space if you own a home and you have not already done so. And if you study Lee’s suggestions carefully you may just find yourself heading towards a more lucrative and happier future in the midst of all of the doomsday reports about the economy. The bottom line is for most people there is nothing more relaxing, rewarding and meaningful in life than being able to be your own boss, let alone in the comforts of your own home.
Photographer: Arvind Balaraman
Mandel News Service