IRS Home Office Deductions
If you are lucky enough to find employment that allows you to work from home or you operate a business from there, aside from the personal freedom it provides you and money in gas you save on commuting, tax benefits await you as well. The IRS allows you to claim a deduction for some of your personal housing expenses that relate to maintaining your home office.
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Exclusive Use
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The first requirement you must satisfy before you start gathering all of your receipts is that you must use a certain area of your home exclusively for the office. This means that you cannot claim a home-office deduction if you complete all your work from the living room couch since you also probably use the space to watch television and entertain guests. And putting a desk in that spare room won't allow you to claim the deduction either if you have a bed in there. Your home-office must only be used for work purposes.
Principal Place of Business
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But just because you take the bed out of that spare bedroom and replace it with a desk, fax machine, computer and more office supplies than your local Officemax does not automatically qualify you for the deduction. You must also use this office as your main workspace. So if your employer has an office close by, but you choose to work at home for the convenience, you can't deduct any of the expenses. Generally, if there is no other place you can work at and you complete most of your work from the home office, then you will qualify.
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Eligible Expenses
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Now that you qualify, you need to calculate how much of your personal housing costs actually relate to the home office. The first thing to do is add up all of your housing expenses for the year. This generally includes all expenses you pay to keep your entire home running such as electricity, hot water, insurance, rent, security systems and even repairs that don't relate to a specific area of the house. If you own your home, you can even claim a depreciation deduction for a portion of the purchase price. These types of expenses are generally nondeductible to the average taxpayer who heads to an office each morning.
Business Percentage
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Once you add up your total expenses for the year, you then calculate the deductible amount by allocating some of those expenses to the home-office. You do this by coming up with the "business percentage." This is simply the ratio of the square feet of the office to the total square feet in the home. For example, if your home is 1,000 square feet and your office takes up 80 square feet, then your business percentage is 8 percent. This means you can deduct 8 percent of your total housing expenses for the year.
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