Home Office Tax Savings

Don't Pay More Taxes then Necessary

Do you know what your home office tax savings can be? If not you need to become more familiar with how you may be loosing money.

If you look at your home business as a get rich quick scheme don't bother reading this because working from home requires you to take your tax deductions as seriously as your business.

Tax breaks available to home-based businesses can considerably increase your earnings. But your ability to justify these tax deductions are a must. No one wants to be on the justification side of the IRS during an audit.

Business use Defined for “Home Office Tax”

Substantial tax advantages are linked to what the Internal Revenue Service (IRS) defines as “business use of the home,” described in IRS Publication 587.

The IRS uses the term “home” to include houses, apartments, mobile homes, garages, greenhouses, or even boats. Most people choose to use a specific space to run a home-based business, which can range from a spare bedroom to the basement to half the garage.

While the IRS is flexible about the space you use, you must meet certain rules. You must use the space on a continual basis, either as the principal location where business occurs or where you meet clients or customers. The space qualifies as your “principal location” if you use it regularly and exclusively for your business.

Equally important, you must reserve the area of your home claimed for business use exclusively for use by the business. To use this area for home office tax purposes it must be identifiable as a separate space or room.

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Home Deductions

Okay, now you have set aside your work area to receive your home office tax deductions, let's determine the percentage of home you are solely using for your business. The most common way to arrive at this percentage is to determine the square footage of the area used for business, and then divide it by the total square footage of your home. IRS Form 8829, Expenses for Business Use of Your Home will guide you through this process.

You can deduct the full cost of direct expenses for the business section of your home. These direct expenses may include the cost of painting, carpeting, or repairs done only in space used for business.

In addition, you can deduct the business percentage of the cost of certain indirect expenses. For example, if business space makes up 10% of your home's total area, you generally can deduct 10% of any indirect expenses like mortgage interest, rent, utilities, insurance, repairs, property taxes and other services.

While business deductions for using your home are valuable, there is a catch. When you sell your house, some of your profits will be taxed based on the deductions you took for the home office. If you sell your business first, keep these records available for when you sell your house.

Recording Expenses for Your “Home Office Tax”

If you intend to deduct the cost of using your home for home office tax write offs, keep careful records. Think about using a software program to help you with these records.

Regardless of whether you decide to deduct costs for business use of the home, you probably can benefit from a wide range of other deductions for expenses, fees and services.

Some of these deductions for home office tax write-offs are:

• Start-up expenses include facility renovations.
• Operations expenses include office supplies, equipment repairs, postage, utilities, subscriptions, and similar costs.
• Required equipment costs include computers, office furniture, and specialized items.
• Legal and professional fees include fees paid to attorneys, accountants, and consultants.
• Purchased services include hiring family members or service firms to help complete special projects. Payments to family members are deductible as long as you document the services rendered, the cost and issue W2's.
• Automobile costs may be deductible if you keep a mileage log and claim the standard IRS deduction.

For all expenses, keep careful records.

Consult the experts

Your best bet is ALWAYS consult an expert. Keep your business records in a program. By doing these simple things you will see your revenue increase.

Use your home office tax write offs to put more money in your pocket!

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