With the start of the New Year upon us, a lot of us can’t help but to think about TAX SEASON. Because we can’t possibly cover everything there is to know about taxes for the telecommuter in one blog post - I’ve decided to break it up into parts. Today’s will focus on home office deductions. Having knowledge on this area can come in highly useful for all those who are either self employed or an employee of a company working out of his or her home office. According to Uncle Sam, if you use any portion of your home for business, you may be able to deduct the associated costs. And by associated costs, he means the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs. Note that the total amount you can deduct depends on the percentage of your home used for business. This means your deduction will be limited if your income from your business is less than all your business expenses.

Sounds pretty cool, doesn’t it? But of course, with the IRS, along comes several requirements that the telecommuter must meet.
Here are some of the general requirements:

1.) Your home office must be used regularly and exclusively for your business needs. For example, you cannot set up a computer in your family room, type up a couple emails on it, and then consider it to be your “home office.” Basically, you are advised to use your home office as STRICTLY your home office, and nothing else. (i.e. Don’t use it as a spare room for guests, a tv room, etc.)

2.) The business portion of your home must be either your principal place of business OR where you meet or deal with clients, customers, and/or patients in the normal course of your business. Separate, detached structures such as a guest house or garage that is used for business may certainly also qualify as a home office. In recent years, the IRS broadened the types of business activities that can be considered in determining whether a home office is a taxpayer’s principal place of business. Nowadays, a home office is qualified for deductions if it is used exclusively and regularly for the administrative or management activities of your business. However, be on alert that your home office location must be the ONLY place where you can fulfill such responsibilities.

Deductions for the home office may be a little different if you are an employee who works at home (hired by an outside company). If this is you, in order to deduct your home office, your use of a home office to do your job MUST be for your employer’s convenience. Most commonly this tax-deduction requirement is met for those working for a company that does not provide you space at its location. On the other hand, if you are a telecommuter simply because you wished to balance your work and famly life better, or to save gas costs associated with commuting, you cannot claim the home office deduction.

Because I am certainly not a CPA, I suggest that before you claim your home office for tax purposes, check with your accountant or other tax preparation professional to ensure you know the requirements and conditions of legally claiming home office tax deductions. For further information and/or home office deduction tax forms, visit the IRS Website.

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