IRS rules can be tricky
One of the many perceived benefits of working from home is the ability to deduct a portion of your mortgage interest, utilities, insurance , repairs, etc.. I work at home exclusively and am very glad to be able to take advantage of this deduction. After all, every little bit helps.
But before you start planning your taxes this year, there are some things you may not know. I learned some new tidbits regarding this law that I was unaware of. In a post in her column at Entrpreneur.com, Nina Kaufman shares some insights into the home office deduction and why it may not apply to everyone..
- The part you are deducting must be used exclusively for a trade or business. Not occasionally, or even often, but exclusively. That’s why it’s such a red flag for auditing the tax returns for small business owners.
- The home office must be the principal place of business for your company. Not the place where you bring your paperwork after a busy day in the office because you won’t be interrupted by annoying phone calls. If there’s no other location where you can handle the administration or management of your company, your home office may very well qualify.
- [And this is the new morsel I learned] If you deduct home office expenses, you may not get the full benefits of the tax exclusions when you sell your residence. Carving out a portion of your home for the business deductions in effect disqualifies it from the deductions you get from considering it part of your residential property.
So, for those of you who are thinking about creating a home office in your home to start a business, you may want to consult an accountant to see whether or not it would be worth the trouble and expense. And for those of you who currently take the deduction, you may have to make some changes to be sure that you are within the law.
Tags: home based business, Home Business, home office, work at home
