July 27, 2021

Income Tax Tips

If you use a DEDICATED part of your home for your home business, you may be able to deduct certain expenses and costs. It doesn’t matter if you are self-employed or working for someone else, the same rules apply.

Of course, the Internal Revenue Service has requirements for these deductions and, generally, it is easier to meet these requirements if you are self-employed as opposed to working for someone else from your home.

Here are some of the requirements:

  • The area must be used regularly and exclusively for the purpose of your business, regularly for daycare, or for storage of inventory or product samples. Hence, your dining room table won’t qualify!
  • The section of your home dedicated to your business must be your principal place of business, where you meet with your clients in the normal course of your business, or where you perform the administration and management duties of your business. Billing your clients, ordering supplies, doing the bookkeeping, calling people to set up appointments, forwarding orders or writing reports all qualify as administrative duties if this is the only place you have to do these things.
  • In order to deduct the expenses of your home office if you are an employee working for someone else, your home office must be for your employer’s convenience, for example, if there is no place at your employer’s office for you to work.

Here are just a few of the expenses the IRS allows you to claim a percentage of for your home office:

  • Rent
  • Real Estate Taxes
  • Deductible Mortgage Interest
  • Utilities
  • Insurance
  • Depreciation
  • Painting
  • Repairs

The proportion you can deduct depends on the percentage of your home dedicated to your home office. Your deductions are limited if the income from your business is less than your business expenses.

If you are self-employed, use IRS Form 8829 to calculate your deductions and report the amount on Schedule C.

If you are an employee, use the worksheet in IRS Publication 587, “Business Use of Your Home”, to figure your allowed expenses. These are then claimed as itemized deductions on Schedule A. All the forms you need can be found on the Internal Revenue Website.