Can You Claim a Home Office Deduction?
For many people who own their own business, claiming a home office is a great tax deduction. Some people who work for employers can also claim a home office, but they must also meet the requirement that it’s for the benefit of the employer. What about you? Should a home office deduction be on your tax return this year?
The first criteria for a home office is “regular and exclusive”. This basically means that you have a defined space that is only used for business. It doesn’t mean you have to have four walls, your defined space can be a section of another room. For example, let’s say you have a desk in your bedroom that you do your office work out of. You make your business calls there, the computer is there, it’s your business headquarters. Your bedroom can’t be your home office, but that corner of your bedroom certainly is. Many people think that since they don’t have a dedicated room to call an office that the home office deduction isn’t available to them. That’s not true. Let’s say that this guy’s bedroom is 12×14 feet. His office space is basically his desk, his chair and a file cabinet that takes up about 5×8 feet. His home office space is 40 square feet. Granted, that’s not much of an office, but it’s still going to help reduce his taxes and that’s the whole point isn’t it?.
Let’s go back to the “exclusive” use idea again. Let’s say you’re using your kitchen table for you office. (To be honest, it’s my favorite place to work.) The problem is, because its the kitchen table, it doesn’t qualify as exclusive use. Come five o’clock (at least at my house) I clean the table off and get ready for dinner. I actually have another spot in the house that I do claim as my home office, and I really do work up there. It doesn’t mean I never work at the kitchen table, it just means that I don’t claim the kitchen as my home office.
The concept of office space as a function of business is changing. How many people do you know would say their office is at Starbucks? The cab of their truck? Wherever their Blackberry is? (The IRS doesn’t yet allow Starbucks receipts to be claimed as office rent expense, but I wish they did.) For many people, these places really are their offices, but they still need a place where they can regularly store paperwork and/or product and receive mail. Starbucks may seam like your main office, but I would argue that you could also claim a home office deduction if you made space for it.
Now if you actually meet clients in your home, the home office deduction is almost a gimme. Also, if your home has a separate structure where you do business, that’s pretty much guaranteed. Qualified daycare providers have special rules for claiming the home office deduction, but they definitely are able to claim a portion of the home expenses against their business income.
So what home office claims are going to get denied? Well, one example that didn’t work was a woman who had a party plan business. Every week she was hosting parties in her home for 10-20 couples selling her product. She had claimed her whole house as a home office business deduction because the guests had full run of her house during the weekly parties. Right about now you may be wondering, “what the heck was she selling anyway?” Pretty mundane stuff actually. If you’re selling a home party product like Avon, or Pampered Chef, you can claim a home office deduction for the storage of your product. You can also claim office space for your administrative duties. I would even go so far as to say you could claim an area of your home if you used it exclusively for your home parties on a regular basis like this woman did. But, claiming your whole house (including your kid’s bedrooms, your bedroom, your kitchen, your personal bathroom) …that’s not going to fly.
Many people are afraid that a home office deduction guarantees an audit. That’s not the case. But, there are trip points that will make the IRS look closer at your return like claiming the whole house in the example above. Be sure to have a professional prepare, or at least review, your return when you claim a home office. The money you spend up front will be well worth it in the time and taxes saved.