The internet is changing the workplace. Many people can now choose to telecommute and work from home, rather than head into the office. Luckily, the IRS offers a home office deduction. In conversations with friends and acquaintances, I have found that the home office tax deduction is often misunderstood.
The home office deduction allows business owners (and some employees) to deduct certain expenses, such as:
- Home repairs
- Utility bills
- Mortgage interest (or rent)
Who is Eligible for the Home Office Deduction?
According to the Taxpayer Relief Act of 1997, you can make deductions for a home office as long as
1. You use the office to conduct management or administrative duties of your business or trade
2. You don’t conduct said activities at any other fixed location
So, you can’t just use that little corner room that your mother-in-law stays in and call it a home office. To save on taxes, you’re going to have to find a legitimate room that is exclusively used for business.
Note that you don’t have to exclusively conduct your administrative or managerial duties in your home office. If you’re on the road, in an airport, or a hotel, you can still claim the deduction because these places are not fixed locations of your business.
Which Employees Can Take the Home Office Deduction?
If you are an employee of a company, you may or may not be able to claim the home office deduction. In addition to all the standard tests, employees must prove that the home office is used for the convenience of the employer. If your employer has an office that you could work at, but you choose to telecommute instead, then you won’t be able to claim the deduction.
But, if the employer has no fixed office or you were hired as a telecommuting employee from the start, then you should be able to get the deduction.
There are many myths that surround the home office deduction. Notably, that claiming it would increase your chance of an audit. This is simply not true, however, and the deduction is a great way for many business owners and some employees to save on taxes. My advice? Never be afraid to take a deduction that you are legally entitled to, and be sure to check that box next time tax season rolls around.
Have questions? Get in touch today!
Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.