As the world expands into its endless realms of technology, more and more working individuals are benefiting from the luxury made available to have a home office. Whether you are self-employed or are an employee, you may be able to deduct certain expenses for the part of your home you use for business.
To deduct expenses for business use of the home, you must use part of your home as one of the following: 1. Exclusively and regularly as your principal place of business for your trade or business 2. Exclusively and regularly as a place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or 3. A separate structure used exclusively and regularly in connection with your trade or business that is not attached to your home 4. On a regular basis for certain storage use 5. For rental use As a daycare facility.
If the exclusive-use requirement applies, you cannot deduct business expenses for any part of your home that you use both for personal and business purposes. You must 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.
Additionally, a portion of your home may qualify as your principal place of business if you use it for the administrative or management activities of your trade or business and you have no other fixed location where you conduct substantial administrative and management activities for that trade or business.
An employee may only deduct business use of the home expenses when he or she uses the business part of the home regularly and exclusively and for the employer’s convenience.
Historically, taxpayers have computed the business use of home deduction by allocating the total expenses of the home to the percentage of the home floor space used for business. While taxpayers can still figure the deduction in the same manner as before, many taxpayers may find the optional safe harbor method less burdensome. Beginning in 2013, the IRS allows qualifying taxpayers to use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet) to compute the business use of home deduction.
