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If I Sometimes Work Out of My Home, What Can I Claim?

You can, of course, deduct the *direct* costs incurred due to your employment or business. For example, the cost of *supplemental" homeowners or renters insurance paid - because you meet with clients at your home - would be an ordinary and necessary business expense.

However, if you are looking to deduct costs that would otherwise be personal in nature ... such as the a portion of your apartment rent, depreciation on part of your residence, or utilities prorated to the home office ... there are several rather strict rules that come into play. In brief, not only must the use of the home be an "ordinary and necessary" expense for your business, but it must qualify as the "principal place of business" under IRS regulations.

Under current guidance, your "principal place of business" is ANY one of these:

  1. The place where you regularly meet with customers or clients in the normal course of your business, or
  2. The place where the *income producing* activity most often takes place (or, if that is too close to call, the "backup test" below applies), or
  3. The office is a separate structure from the home, and you do not calculate the expenses as a percentage or portion of your home expenses.

If #2 is difficult to call ... if the income producing activity takes place at several locations, *including* the home office ... you generally would consider the average amount of time you spend in the home office by comparison to all other places. (Note: Only time YOU spend in the office counts. Don't count office time put in by assistants or employees).

Examples:

  1. Joe is a carpet cleaner, who spends roughly 25 hours a week in his home office, calling potential customers, setting appointments, ordering supplies, etc. He spends another 20 hours a week actually cleaning carpets in homes and offices. Although he spends more business time in the office than out of it, and the office work is obviously necessary for his business to survive, his income is earned entirely in the homes and offices he cleans. He does not qualify for a home office deduction.
  2. Mary is a management placement consultant. She interviews and tests job seekers (who pay her) in her home office for 12 hours a week, and spends another 28 hours a week networking with outside businesses who might be interested in hiring her clients. Although both activities are involved in the income-producing activity, and she spends more of the time outside of her home office, Mary does qualify for an office-in-home deduction, since she meets with her customers or clients in the office in her normal course of business.

If you are an employee, in addition to the conditions previously discussed, the use of your office at home must be REQUIRED by your employer as a condition of your employment. It cannot simply be *agreed* to as an accommodation to you.

If a self-employed person is entitled claim expenses for business use of his or home, Form 8829 must be completed and attached to the tax return. If the usage is as an employee, a statement similar to Form 8829 should be used and the total carried to Schedule A as an employee business expense.

The deduction for business use of the home cannot exceed the net income from the business. For an employee, it cannot exceed wages paid by that employer. Any excess expenses can be carried forward to offset future business income.

 

 

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Disclaimer
We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017