How to Create a Home Office -Tax Considerations

I hope that by now you’re starting to get excited by your new venture. You’ve reached the step where it’s time to create your home office. The Internal Revenue Service allows you to write off the expenses of a home office if certain criteria are met:

Instructions

Difficulty: Easy

1. Exclusive use.
   You must use the specific area of your home only for trade or business. It can be a room or other separate space and doesn’t need a permanent partition, but the room can not be used for personal purposes. Daycare facilities are regulated differently.
2. Regular Use.
   If you occasionally venture into your woodworking shop to shape shelves and furniture that you sell once in a while at flea markets, your shop cannot be written off as a business expense.
3. Principal Place of Business.
   You can conduct business at multiple locations, but your home’s business use must be the principal place where you meet with clients, patients or customers and work at your craft.
4. Business deductions only apply to businesses.
   There are profit making activities that are not businesses. For example, if you monitor your investments at a desk, reading financial reports there but don’t work as a broker, you can’t deduct that office space.
5. Determine the portion of your home that you can deduct for business use
   Divide the area of your home by the area used for business. Multiply that by your home expenses which can be rent or mortgage as well as utilities, cleaning and maintenance. That amount can be written off. You cannot deduct business expenses for the use of your home for any portion of the year in which you did not conduct business.