5 Tips for Making the Most of Your Home Office Tax Deduction

In today’s digital age, an increasing number of Americans are working from home. Whether it is for to run a small business or to telecommute for an employer, the home office deduction is used by more taxpayers than ever before. There is some confusion, however, about what qualifies as a home office and which expenses can be deducted.

Here are five tips for getting the most from your home office deduction (if you qualify):

Strictly Business

To qualify as a home office, some part of the home must be used “exclusively and regularly” as your principle place of business. This means you must have space in your home that is separated from the rest of the dwelling where you conduct your business. A separate bedroom, basement, or even a fancy shed in the backyard would qualify. An area that is used for both business and personal, such as a kitchen or TV room, would not qualify.

Partial Deduction is Available for Utilities

A portion of your electric, heating, air conditioning, phone and internet bills can be deducted based on the percentage of the square footage in your home that is used for business. To make it easier to keep records, it is often recommended to have separate phone/fax lines, and a separate internet connection for your business.

Supplies and Furnishings May Be Deductible

If you have a home office, you most likely have a computer, fax/printer, phone, desk, chair, and other furnishings. You will also have to purchase supplies such as pens, pencils, paper and ink on a regular basis. If these furnishings and supplies are used for business purposes, you may be able to deduct them.

Business Travel Can Be Deducted

Even if your home is your primary place of business, it is highly likely you are not there all-day every day. There are times when you may need to travel across town (or across the country) to meet clients and other associates. The cost of mileage (at 54 cents a mile for the 2016 tax year), parking, tolls, airfare, hotels, and 50% of meals and entertainment are all deductible if they are related to your business.

Your Home Office Deduction Can Be SimplifiedHome Office

In the past, it used to be an accounting nightmare to calculate the percentage of your home used for business, then calculate the percentage of your utilities, phone, internet, and other home-related expenses to determine how much could be deducted as business expenses. The IRS has made things easier with the simplified home office deduction option. Now, all you need to do is take the number of square feet used for business (up to 300 square feet), and multiply that by $5 to arrive at your deduction. Keep in mind that even if you choose the simplified option, you can still itemize your deductions for supplies, furnishings, and business expenses outside the home. The simplified option makes things easier, but it is not for everyone. If you can deduct more by fully itemizing, then you may want to go this route. If you are unsure which home office deduction option is right for you, speak with your tax professional.

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