Question:
I have a home office. What types of expenses are deductible when one has a home office?
Answer :
With more and more people expected to be self-employed and working from home, here are a number of tips to help home-business-owners be sure they were properly calculating home office deductions:
Business Only
TOne of the most important things to be sure of before you try to claim the deduction is that some part of the home has to be exclusively and regularly used as the principal place of business. A mixed-use area, like a kitchen, wii not qualify.
The Simplified Option
Self-employed folks with an office in their home do not need to do a lot of calculations and add up all their home-office-related expenses. The IRS now offers a simplified option based on the size of the office. Under this simplified option you take a standard deduction of $5 per square foot of workspace, up to 300 square feet.
You can go with individual expenses or the simplified option, whichever is larger, and you can change from year to year.
Common Deductions
Some of the business owners heating, electric and utility bills can be deducted, and phone, internet and other information services may also qualify. Separate Internet connections and phone numbers can help keep track of expenses.
An office isnot an office without office supplies -- which is why computers, printers, toner, paper, paper clips, staplers, staples, staple removers and other critical equipment may also qualify. Furniture and upgrades to the home itself, if related to the office, may also be deductible.
Leaving Home
Many of those with home offices will find themselves travelling for business purposes even if its just driving across town to a client. Parking, tolls and mileage (at 54 cents a mile for business-related travel) may all be deductible, to say nothing of airfare and hotel rooms.
Recordkeeping
We recommend keeping expense records for at least three years after filing, or two years after paying taxes, whichever is later. Among the records home-business-owners should be holding onto are cancelled checks, bank statements, vendor invoices, bills, receipts and mileage logs.
More information on having a home office is available in IRS Publication 587.
KBL Business Bytes represents short answers to common questions that we receive from the owners emerging businesses. The information contained in KBL Business Bytes should not be used in any actual transaction without the advice and guidance of a professional adviser who is familiar with all the relevant facts.
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