What is the home office tax ?
We're going to go through everything you need to know about home office tax deduction I have been getting so many questions about the details of how it works and what it means, so I know this information will be valuable for many of you we have a lot to cover so make sure you stay tuned and if you have questions as you read this article then leave them in the comment section below, and I'll respond to you as soon as I can an important thing to keep in mind is that this is one of more complex text areas, so the dowel is definitely in the details
Who qualifies for a home office deduction?
A home office tax deduction can lower your income tax bill the first question that many have is if they qualify to take it an easy way to explain it is if you are self-employed and part of your home is for business use you can take advantage of the home office tax deduction there are three concepts that you need to be aware of they are exclusivity regularity and precedence essentially in practice these are going to be the tasks that the IRS will use to verify if you're truly eligible for that deduction these are very important concepts, and they will help you determine if you qualify
So let's quickly walk through them individually starting with exclusivity in order to pass the exclusive use test your working area needs to be used solely for your business activities solely is the key word here the space should be in its own room or identifiable separate area but using the IRS verbiage the space does not need to be marked off by a permanent partition a corner of your living room that is used to let's say for business activities will pass the test on the flip side a desk that doubles as the kitchen table will not you need to ensure that your work area has clearly identifiable boundaries and that those boundaries are not crossed
Regularity
The second key concept that will help you identify if you meet the qualification's regularity is the regular use condition stipulates that you need to use your home office regularly though not necessarily heavily so if you have a part-time business it will still qualify you will be fine the key is to be using it according to a regular and predictable schedule even if it's only three days per week
Precedence
The third concept that I want to cover is precedence the third component says you need to use your home office as the principal place of your business while it's okay to work out of more than one office your home office needs to take precedence over other working locations, so these are the three key factors to keep in mind that will help you figure out if you can claim this deduction on your return
Types of Home Office Expenses
That qualify for this deduction the IRS distinguishes between two different types of expenses direct and indirect
- Direct Expenses are solely for the part of your home used for work and include expenses like painting your home office and making any repairs. these are 100% deductible.
These expenses these direct expenses are a hundred percent deductible common direct expenses include such costs as office furniture necessary repairs or maintenance such as fixing a fixture or replacing the lock on your office door
- Indirect expenses are for the maintenance of your entire home and include expenses such as utilities or insurance. These are deductible based on the percentage of your home that is used for business.
Are Renters Eligible for Home Office Tax Deduction?
Now I realize that some of you may be renting and if you do, there is a tax break I want you to know about as well if you rent your home office space, and you qualify for the home office deduction using those three concepts that we just covered earlier in this article you can deduct a percentage of your monthly rent that percentage is equal to the percentage of your home square footage used for work, so it's very similar to what we just discussed earlier in this article if you own a home in addition to that you can apply the same percentage to other home expenses such as your utilities and your renter's insurance for example if your home office is 10% of your apartment let's say then you can deduct 10% of your rent utilities and insurance for that year now that we covered three tests you must meet to claim the deduction which are exclusivity regularity and precedence using the IRS language we talked about two different types of expenses direct and indirect
Where Can I Deduct Home Office Expenses?
Where you can deduct home office expenses to claim home office expenses for a sole proprietorship you need to calculate your deductible expenses using IRS Form 8829 for the relevant tax year, after you've done that you need to report these expenses on your schedule c of your form 1040. If you're a partner or a member of an LLC you also can take advantage of this deduction use the worksheet in IRS publication 587 to calculate the home office deduction and then claim it on your schedule e there are several entities however that cannot claim home office tax deduction these entities are as corporations c corporations or LLCs that have elected to be taxed as a corporation so those cannot claim the home office tax deduction. Earlier in this article, I mentioned form IRS 8829 this is the form you need to locate on the IRS website the most recent version.
we covered a ton of information in this article, if you have questions or feedback don't hesitate to leave a comment
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