Are you eligible to claim a home-office deduction?

Running a business from your home could save you taxes!

Before you go through all of the trouble of filing out IRS Form 8829 consider whether the home office deduction is worth it or not. To help make that consideration you must pass the 4 question test:

1. Is the home office used in a trade or business?
2. Do you use the home office regularly and exclusively for business?
3. Is your home your principal place of business?
4. Do you use your home office to meet with customers/clients in the normal course of business?

If the answer is yes to all above, you qualify for the deduction. You will have to determine which expenses are direct and indirect to the home office. Certain expenses like lawn mowing are not deductible. Now you must determine the actual business use percentage which is normally office square feet/ total house square footage.

Is the home office a “red flag?” Many clients don’t want to take a legitimate deduction because they fear being audited. The IRS has somewhat backed off of their normally suspicious attitude regarding this deduction because more and more people have become self-employed and are using the deduction.

Finally, the home-office deduction is available only if you are running a legitimate business in your home. If the IRS decides that you really have a hobby and not a business, they will disallow the deduction.