Consultants, salespeople, and other self-employed workers who have
no other place to perform administrative functions are eligible to deduct home office expenses in three circumstances.
A "home office deduction" is allowed when you use a portion of your dwelling exclusively for business
1. on a regular basis as your principal place of business for a trade or business, or as the only
place where you perform administrative functions;
2. as a place where you meet with patients, clients, or customers
in the normal course of your trade or business, or;
3. in the case of a separate structure that is not attached
to the dwelling, if the use is "in connection with," your trade or business.
An allocable portion of
expenses attributable to the residence is allowed as a deduction if any one of those three conditions is satisfied.
If you are an employee, a home office deduction is available only
if, in addition to satisfying the exclusive and
regular use test, your home
office is maintained for your employers convenience.
Expenses allocable to a
portion of a residence that is used on a regular basis for storage of your inventory or product samples will be allowed as
a deduction if you are engaged in the trade or business of selling products at retail or wholesale, but only if the residence
is the sole fixed location of that business.
Special rules apply to limit a "home office deduction"
when it would otherwise exceed income from the business. If you believe you might benefit from this deduction, give us a call.
We can help you determine eligibility and advise you regarding the record keeping required for securing the deduction.
Office Expense Deductions and Calculations
Business Square Footage
Total Living Space
Paid or Rent Paid
Real Estate Taxes Paid
Repairs and Maintenance
HOA Fees or
Home Office Deduction No-Nos
Most taxpayers with home-based businesses accurately report their
income and expenses, while enjoying the benefits that a home-based business can offer. However, some individuals have received
advice that they can operate any type of unprofitable business out of their home and claim personal expenses as business expenses.
Non-deductible personal living expenses cannot be transformed into deductible business expenses regardless of how convincing
the information in marketing materials may seem.
The following are a few examples of items that are generally not deductible as business
Deducting all or most of the cost and operation of a personal residence. For
example, placing a calendar, desk, file cabinet, telephone, or some other business-related item in each room does not increase
the amount that can be deducted.
Paying children a salary (e.g. for answering telephones, washing cars,
Deducting education expenses from salaries paid to children wrongfully claimed as employees.
excessive car and truck expenses when the vehicle was used for both personal and business use.
Deducting personal furniture,
home entertainment equipment, childrens toys, etc.
Deducting personal travel, meals, and entertainment under the guise
that everyone is a potential client.
Any investment scheme or promotion that claims to allow a person to deduct what
would normally be personal expenses, and not ordinary and necessary business expenses, should be considered highly suspect.
As always, a business must truly exist prior to claiming expenses.