As a small business owner, chances are that you have an office at home where you work into the wee hours of the morning. Your small business can take up a great deal of time to manage successfully and a home office is one way that you can still be at home to have some family time.
The additional time at home is just one advantage of your home office, it also offers some tax benefits. Many common misconceptions of the home office deduction are making the rounds and you may have hesitated to make full use of the benefits that it offers. You should read IRS form 587 and of course, discuss this with your certified professional accountant.
Some are the most common misconceptions include
- Taking the home office deduction makes it more likely that you will be audited
- You have to use an entire room strictly as your home office
- The home office must be your only place of business
- It is complicated to take the home office deduction
Taking the home office deduction makes it more likely that you will be audited
Plenty of things on an income tax return can make it stand out to the IRS but a home office is not one of them any longer. The truth is, about 50% of people who file a tax return either have or have had a home office. However, if you have particularly low income and exceptionally high home expenses, this could be a red flag, so use common sense and keep good records so that you can justify the expenses you are claiming in the unlikely chance you do have to undergo an audit.
You need to use an entire room strictly as your home office
Having a distinctive and private office is the ideal situation when it comes to claiming a home office. If you have a desk in a corner of a room and can separate that area with a partition of some sort, this can satisfy the requirement that the usage is strictly for your business. If you conduct your business from your recliner or from the dining room table, you are not going to qualify for the home office deduction. The IRS has challenged this in court and won so if you don't have a dedicated office you are not eligible.
The home office must be your only place of business
This is not necessarily the case. You must use your home "substantially and regularly to conduct business" but it does not say exclusively. You may be doing all the administrative tasks for your business at home or you may have to report into another office but work primarily from home. This is an important myth to discuss with your tax advisor.
It is complicated to take the home office deduction
You can keep records of all your home office expenses but since 2013 you can take a much more simple approach and take $5 per square foot up to a maximum of 300 feet or a $1,500 deduction.
As a small business owner, understanding the tax benefits of the home office deduction is important. At Chandler & Knowles CPAs we give our clients the benefit of our years of experience helping business owners to maximize the tax deductions that they are eligible to claim through our strategic business tax planning services. Give our office a call to set up an appointment to talk about your business needs.