How to Deduct Your Home Office
Business owners often make mistakes trying to claim the home office deduction. For example, you can’t deduct space in your home that has both business and personal uses. Whatever the space is, it must be regularly used for your business.
If you’ve determined that you can take the home office deduction, what else should you consider? You can take advantage of the deduction in ways beyond the traditional office with a computer and a fax machine. If you run an in-home business such as a spa or day care facility, or if you manufacture goods or store inventory in your home, the space you use for that can be deducted.
An owner with a home business can deduct expenses used to maintain the home office including the portion of utilities, mortgage interest, rent, maintenance, insurance and other expenses attributed to that space. One of the major advantages of a home business deduction is that you can also depreciate the portion of a residence used for business (normally, a residence cannot be depreciated).
To determine how much of your expenses to deduct, a standard method is to divide the total square footage of the home by the square footage allotted to the business. However, the square footage method can appear erroneous to the IRS if your home business space is too large for the type of business that’s operated in your home.
If you're thinking of claiming the deduction, you should work with your accountant in understanding IRS Publication 857, Business Use of Your Home (available at www.irs.gov) as well as Form 8829. There are a number of considerations that your accountant can help you with, such as what to do if you sell your home or if your deduction is larger than the net profit of your business. Contact an MGO tax professional for assistance with these and tax considerations.
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