Definition: Income tax deductions you're allowed to take if your home office
passes the "exclusive use" text needed to qualify for the deduction
Working at home can grant you a break on your income taxes,
provided that your home office qualifies for the potential
deductions. There are two factors you must prove to show the IRS
that your home office qualifies for deductions on your tax return.
First, you must show, on your tax return, that you use your home
office exclusively and regularly as your principal place of
business. And second, you have to prove that it's the place where
you meet with patients, clients or customers in the normal course
of doing business.
In order for your home office to qualify as your principal place
of business, you must spend most of your working hours in your home
office and most of your taxable business income must come from
activities in your home office.
That's been harder to prove since the Supreme Court tightened
this tax definition in 1993. To meet this tax test now, you must be
able to show the IRS that your home office is your most important
place of doing business or that you spend more time working in your
home office than anywhere else. So make sure you have tax records
of your activities at your home office and a log of the time you
spend working at your home office.
You must also prove that the part of your home you use as your
home office--which can be just a portion of a room as opposed to an
entire room--is used only for business. Two exceptions are if
you're storing inventory or using a room to provide day care; then
you can also deduct the use of the space as part of your
residence.
Here are some of the items you may be able to deduct if your
home office passes the use test. (As always, consult with your
accountant to make sure these apply to you.)
- A percentage of your rent if you lease or rent, or of
your home loan interest if you have a mortgage
- Cleaning costs for your home office--both labor and
supplies
- A portion of your real estate taxes and interest costs
"above the line" (that is, before payroll taxes are
calculated)
- Some depreciation for the office part of your home
- Utility costs and trash collection fees you can
attribute to your home office
- Maintenance and repair of your home office, including
painting
- Household furniture you converted or purchased for use
in your home office