Home Office Tax Deductions

Working at home can grant you a break on your income taxes,provided that your home office qualifies for the potentialdeductions. There are two factors you must prove to show the IRSthat your home office qualifies for deductions on your tax return.First, you must show, on your tax return, that you use your homeoffice exclusively and regularly as your principal place ofbusiness. And second, you have to prove that it’s the place whereyou meet with patients, clients or customers in the normal courseof doing business.

In order for your home office to qualify as your principal placeof business, you must spend most of your working hours in your homeoffice and most of your taxable business income must come fromactivities in your home office.

That’s been harder to prove since the Supreme Court tightenedthis tax definition in 1993. To meet this tax test now, you must beable to show the IRS that your home office is your most importantplace of doing business or that you spend more time working in yourhome office than anywhere else. So make sure you have tax recordsof your activities at your home office and a log of the time youspend working at your home office.

You must also prove that the part of your home you use as yourhome office–which can be just a portion of a room as opposed to anentire room–is used only for business. Two exceptions are ifyou’re storing inventory or using a room to provide day care; thenyou can also deduct the use of the space as part of yourresidence.

Here are some of the items you may be able to deduct if yourhome office passes the use test. (As always, consult with youraccountant to make sure these apply to you.)

• A percentage of your rent if you lease or rent, or ofyour home loan interest if you have a mortgage
• Cleaning costs for your home office–both labor andsupplies
• A portion of your real estate taxes and interest costs”above the line” (that is, before payroll taxes arecalculated)
• Some depreciation for the office part of your home
• Utility costs and trash collection fees you canattribute to your home office
• Maintenance and repair of your home office, includingpainting
• Household furniture you converted or purchased for usein your home office