As remote work models become the new norm, many individuals find themselves erecting dedicated office spaces at home. This may also be the case for small business owners, sharing their residential property with their business space. If you are in this position, you may be wondering whether the expenses you incur for your home office are tax deductible. You’ll be pleased to know that there are several tax deductions for home office expenses, that you may qualify for. In this article we take a look at some of the tax deductions that home-run businesses may be eligible for, and offer some expert tips on maximizing these deductions.
In order to be deemed eligible for home office tax deductions, taxpayers generally must exclusively and regularly use part of their home or a separate structure on their property as their primary place of business. The IRS stipulates the following requirements:
To deduct expenses for business use of the home, you must use part of your home as one of the following:
- Exclusively on a regular basis as your principal place of business for your trade or business;
- Exclusively on a regular basis as a place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business;
- A separate structure that’s not attached to your home used exclusively on a regular basis in connection with your trade or business;
- On a regular basis for the storage of inventory or product samples used in your trade or business of selling products at retail or wholesale;
- For rental use; or
- As a daycare facility.
Note that when the exclusive use requirement applies, you can’t deduct business expenses for any part of your home that you use both for personal and business purposes. Under the principal place of business test, you must determine that your home is the principal place of your trade or business after considering where you perform your most important business activities and where you spend most of your business activity time, in order to deduct expenses for the business use of your home.
A portion of your home may qualify as your principal place of business if you don’t conduct substantial administrative or management activities for that trade or business from another location. This means that individuals subscribing to a hybrid work model wouldn’t typically qualify.
Tax deductible expenses for home offices
While there are a number of ways in which to calculate the deductions, which your accountant or CPA can advise you on, it is important to take note of the deductible expenses the IRS deems eligible for deduction when making use of your home for business purposes. These include the following:
- the business portion of real estate taxes,
- mortgage interest,
- rent,
- casualty losses,
- utilities,
- insurance,
- depreciation,
- maintenance and repairs.
Note that you generally can’t deduct expenses for the parts of your home not used for business.
Maximizing tax deductions
As always, it is important to keep a record of your income and expenses when filing your taxes. As a small business owner working from home and claiming tax deductions for home office, your expenses would need to be justified. Implementing expense management software to calculate travel miles and other expenses will also help you submit accurate figures to the IRS to avoid penalty payments. Remember that there are specific tax rules that apply to home office deductions, so it is advisable to consult with a tax expert to maximize the deductions you are eligible for. They can also help you determine whether you may qualify for any additional other tax credits and advise you on how to save money going forward.
At Fusion, our tax professionals are skilled at submitting accurate and timeous tax returns and aim to maximize the credits and deductions that individuals and businesses are eligible for. We also offer our clients software solutions that suit their individual needs and make the administrative record-keeping part of tax submission easier. Consult with our experts today if you require tax filing assistance.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.