One of the most important issues of the 21st century is the one regarding the phenomenon of telecommuting. According to several important surveys, about 45 percent of the entire workforce of the U.S. works from home. Still, being a remote worker is not as easy as some people may assume it to be. In fact, if you aim to be efficient as a telecommuter, you have to make a proper work environment instead of trying to work from your living room couch.
Aside from giving you a huge efficiency boost, this might also help you qualify for the home office tax deduction. Still, this is not nearly as simple as it may seem at first, so here are a few categories your business must fit in order for you to qualify for IRS home office deduction.
1. Exclusive use
In order to be fit for a tax deduction, your home office needs to be exclusively used as a business space. What we mean by this is that it should be your principal place of business, instead of just being the place where you come to work part-time. It should also be a place where you meet your clients and customers. Finally, it needs to be used exclusively for business. This means that dual-purpose rooms, like a bedroom-office or even a closet-office, are not a valid option.
2. Business percentage of the house
Another criterion that must be taken into consideration is the percentage of the house that is being used for business purposes. This, however, can be calculated in one of two ways. First, you can simply measure the size of your home, for example, let’s say it’s 1,000 square feet for easier calculation. Next, you can just measure the area of the house that is being used for business, for instance, 200 square feet, which would amount to 20 percent of your entire living space.
Still, this is not the only way of calculating the amount of space used. Let’s say, for example, that you use your office for work 12 hours per day (including things like preparing the space for work and cleaning up afterward). This would mean that this space is used only about 50 percent of the time as an office space, which would immediately cut your tax deduction potential in half. Still, due to its complexity and difficulty of establishing exact numbers, this method of calculation has been abandoned in most regions.
3. Things to watch out for
Even though finding a way to get a home office deduction may be quite lucrative and budget-friendly, some people simply get carried away. You see, your gross income is one of the main issues that the IRS will focus on and the last thing you want is to raise one or several red flags. For instance, JW Surety Bonds website tackled the topic in an article that among other things describes the ways in which personal photos and décor, as well as using a business printer for personal issues, may backfire.
4. Self-employed or an employee
Finally, one of the things you need to watch out is your current status. Namely, there are different rules for self-employed people, who usually use the method on Schedule C, and for employees, who are more likely to claim a deduction on Schedule A. Still, you need to keep in mind that in both of these cases, the income you make from your home office might play a vital role in the deduction you would be able to achieve. In other words, your income shouldn’t be smaller than some of your expenses since otherwise anyone who has ever made a single dollar working from home would be qualified to apply for this deduction.
While it is true that home office deduction might be incredibly valuable in your annual budget review, it isn’t that easy to get it. In fact, a person from the IRS can (if they choose to) dismiss your application simply based on the fact that a family dog fell asleep in your home office. To make the long story short, you need to find the right way to apply, but at the same time, treat your home office like it is an actual office. You would be surprised at just how difficult this may be.