There seems to be much confusion on the home office deduction. I don’t understand why when the IRS regulations are so well written and logical. LOL. In this article I will dispel the myths surrounding the home office deduction and suggest ways you can structure your specific circumstances to properly take this deduction.
MYTH #1 The Simplified Option allows everyone to take a $1,500 home office deduction without any documentation.
REALITY #1 Taxpayers must prove that at least 300 square feet of their home is used regularly and exclusively for business and that their home office is the principal place of their business to get the maximum $1,500 deduction.
MYTH #2 Taxpayers can use their home office space occasionally for personal activities like using the computer, telephone, chair, desk, etc.
REALITY #2 Any personal use voids the home office deduction.
MYTH #3 Taxpayers can have a home office deduction even if they have another office suitable for doing the activities performed in their home office.
REALITY #3 Generally, if you have another office outside your home you can’t deduct home office expenses. However, if you meet with patients, clients, or customers in your home office in the normal course of business your home office would qualify for deductions.
MYTH #4 An employee can have a home office deduction.
REALITY #4 Yes, but only if it is for the convenience of the employer (not the employee)
Non-exclusive use is a major reason the IRS disallows many home office deductions. Taxpayers can use part of a room rather than the whole room to keep the office space exclusive. Also, any technology, etc. should be removed from the home office space for personal usage. We suggest clients take pictures of their home office for documentation purposes. My favorite reason for clients having a home office isn’t for the home office deduction, but rather for the ability to deduct mileage from their home office to their next business location. Contact us for more information on maximizing your deduction while keeping the IRS comfortable with your home office.