How to Deduct Your Home Office on Your Taxes

If you work from home, don't miss out on the great tax deduction of your home office space itself. For this tax deduction, you are actually able to write off the portion of your home that you use to conduct business. This can be the day care you operate predominantly in your living room, the kitchen where you bake cookies for resale or the home office where you do your writing, among other work from home adventures. Don't leave money on the table this tax season!

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Measuring tape or home blueprint with measurements
• Mortgage papers
• Property Tax statement
• Home office space dedicated solely to your business

1. 
   For Tax Purposes, a Home Office Needs to be More than a Hobby

   Claim your business when filing your taxes. Whether you are filing a 1040 or you freelance and obtain 1099 forms from those who pay you (such as ehow.com), you need to file these as a work from home business and not a hobby. Hobby income is not eligible according to the IRS website. To claim this income, you must be 'attempting' to turn a profit even if you don't.

2. 
   A Second Computer for Family Use May be a Smart Investment

   Designate an area of your home for the sole purpose of your work from home venture in order for this area of your home to qualify.
   
   As an example: Your tax professional will ask you if that home computer your doing your article writing on is also used by other members of the family or for anything other than your work. Buy a 2nd computer if you must because the answer to this question must be no. (and an auditor can check if they so choose)

3. 
   To File as a Tax Deduction, a Home Office Needs to be Full Time Business Space

   Keep all non-work related items out of your work room in your home if you intend on claiming your home based business on your taxes. If you are visited by an auditor, your son's toy chest won't be able to be explained away if it's sitting in the room you claimed as your author's den. Good rule of thumb is to ask yourself "Would this be found in a traditional office space?". If the answer is no, move it!

4. 
   Calculate Percentage of Home Office Space for Your Tax Deduction

   Measure your room. Then measure your home. Most homes have layout plans when you purchased them or had them appraised. You may use this information. From these measurements, a percentage of space in the home your home office occupies is claimed on your taxes. With this, you are eligible to claim that given percentage of your house payment as a deduction. It's like getting part of your mortgage back!

Tips & Warnings

• Discuss your home office with your tax professional in advance of the day you are actually filing the taxes. This way you won't leave out any pertinent information that may benefit you further.
• Work from home individuals can be audited more often. I suggest you use the services of a professional such as those at H&R Block so the work can be guaranteed.

[mnmommy]

on 2/22/2009 Wow- didn't know you couldn't claim your computer if it wasn't solely for work! Good thing I didn't! :)

[cosmopinkice]

on 2/15/2009 Great tips, thanks so much. I need all the help I can get! 5*