Tuesday, January 19, 2010

The Home Office Deduction

Yesterday’s Tax Deduction of the Week blog (Roni Deutch Tax Help Blog) explained the home office deduction. Over the past few weeks, topics have included alimony payment deductions, traditional IRA contributions, and the 2009 vehicle sales tax deduction. I have included a snippet of the home office deduction entry below, but you can find the full text – as well as dozens of informative articles – at the Roni Deutch Tax Help Blog.

Designated Room or Space

In order to qualify as a home office – in the eyes of the IRS – you need to have a separate room or designated space that is used exclusively for business purposes. If it is not a room, the space needs to be separated by a room divider of some sort. Additionally, the IRS is very strict about the exclusive use rule, so if your children play in the office or your spouse uses the room as a home gym then it will not qualify.

Principal Place of Business

According to the IRS, your office must either be the principal location of that business, or a space where you meet with clients regularly. If you work exclusively from home then you can easily prove that the office is your principal place of business. However, if you have an office away from home, you will need to show that you regularly meet with clients from your home office.

Calculating the Deduction

In calculating your home office deduction you need to know both the total square footage of both your home and your designated home office. This is because your home office deduction will be based off of the percentage of your house used for business. For example, if your home is 1500 square feet and your office is 150 square feet then your deduction would be calculated using 10%. Meaning, you can deduct 10% of your rent and indirect expenses.

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