by Lisa Orme

Created on: August 01, 2008

Tax Deduction for a Home Office

Owning a business provides for tax deductions for anyone who is willing to keep some records in order to take advantage of what the government will allow them deduct. It is said than other than death itself, nothing is more certain in life than paying taxes. While taxes cannot be totally avoided, it is possible to reduce the pain and the amount of tax liability if you are one of those who work from home and you are willing to keep track of things-in writing, of course. The biggest deduction you have is the privilege of deducting costs for a home office.

This legal "tax avoidance" measure, however, must meet certain tests to be permissible to the Internal Revenue Service.

EXCLUSIVE USE
The space you use must be set aside and used only for business. If the room is a "home office" with a large table that you also use as a sewing room or a craft table, well that won't do. But if you have a room or portion of a room set aside exclusively for business use, then that space may qualify as a legitimate deductible space. An office in your attic, or basement, or extra bedroom, or even garage expansion space will qualify. So will a clearly delineated space such as a converted walk in closet; or even one wall of that multi-purpose room, set up with files, desk, computer, etc. as long as it is ONLY used for business purposes and thereby meets the test of exclusive use.

PRIMARY PLACE OF BUSINESS
The space must be your "primary" place of business. If you meet with clients, patients, or customers in your business, then THIS is the place you meet with them. This is not to prohibit the occasional meeting at Starbuck's, of course. But if you have another fixed location for meeting with clients, well again; this just won't do.

For instance, a self-employed independent contractor, like a sales representative, who works out of home, but meets clients in another company office location, cannot qualify their home office as their primary place of business. If their ONLY office location is at their home, then it qualifies as the principal place of business, but if the place they meet is the kitchen table, it doesn't meet the test of exclusive use. Okay, so it's not always crystal clear.

EXCLUSIVE ADMINISTRATIVE USE
One exception to the two rules above is what I call the "Hybrid Rule". If you have a space that you use exclusively for administrative or managerial functions of your business, and you don't do these functions elsewhere, well this space can qualify for

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