Working at Home Has Its Own Rewards - If You Can Qualify!

Ever want to work from home in your jammies? I know, me too. But if you'd like to work at home AND deduct the costs on your taxes, you need to follow some specific rules. Here's some advice from the National Tax Advice Day Web site:

The IRS has a few caveats to making the work-at-home dream, well, work. Here are a few tax tips so you can stay ahead on your taxes:

• In 1999, the rules for deducting expenses associated with a home office were loosened significantly, allowing many people who were previously denied the deduction to begin claiming it. If you're self-employed and use a portion of your home regularly and exclusively for the record keeping and management functions of your business, and you have no other location where you regularly perform such functions, you may qualify for a home-office deduction.
• The rules are trickier for employees who work at home. Keep in mind that the use of a home office by an employee must be required by the employer, not merely permitted by the employer.
• Here's another caveat: if you want to write off your new home office desk chair, don't even think about sitting in it after business hours. You can deduct the cost of your office furniture only if it is used for business 100 percent of the time. Ordinarily you would depreciate that cost over several years, but the section 179 expense deduction allows you to deduct the entire cost in the year of purchase if you qualify.

No matter how you figure it, a home office is definitely a complex deduction - there are a lot of regulations that surround it. We recommend you seek advice from your tax professional if you're planning to take this one.

Kinda strict, aren't they? Anyway, even though I do some side work from home, I don't deduct anything. It's that 100% rule that gets me. Besides, it's not that much and not worth the potential headache if the IRS questioned a deduction.

H&R Block.  Do it yourself or have us do it.  It's never been easier.

Comments

[Dus10]

It also throws up potential red flags when they start picking people to audit, or so is my understanding. Deducting a home office seems to be way too risky. What I have thought about instead is making sure you actual incorporate your business under a good legal entity, and then you can reimburse yourself for expenses that you incur (such as telephone, cell phone, mileage, internet, part of your electricity, etc). I am pretty sure that is much easier to do (as always, check with a tax professional). Also, instead of deducting, you are actually paying an expense, which lowers your profits or gains. This works great with LLCs that do passthru taxation. They become business expenses, and are reimbursed to you. Also, things like that office chair become expenses that you can pay for directly from your business checking account.

[thc]

Mrs. THC has been operating her own business from home for the last five years. The resulting tax deductions, including the one for our rather large mortgage, have been great and not all that difficult to report.

[Hazzard]

I believe that if you take a deduction for a home office, you then really complicate your ability to sell your home without paying capital gains. I'm not completely sure of this, but I think when I looked in to it, I found out that for what I could deduct at the time, it wouldn't be worth it because of the complications if I sold the house.

I also wouldn't meet the 100% criteria.
Hazzard

[Dus10]

Hazzard,

When you sell your home, you can defer your capital gains if you are moving into a larger property and roll the funds into it. This way, you would never have to pay for those gains, if you always do this, and continue this track until you are deceased.