Guest Post by Gary Barzel

The year is coming to an end, and that means tax season is around the corner. If you are currently running a business from home, you may be looking forward to claiming home office tax deductions on your next tax return. Even a few hundred dollars could be a windfall especially if business hasn’t been booming lately.

But if this is your first time seeking these deductions then be aware that qualifying for them is actually not so simple. There are numerous requirements and restrictions that limit those who can claim the home office tax break.

According to the IRS, in order to qualify for a home office tax deduction, your “home office” must be regularly and exclusively used for business purposes. To fulfill the definition of “regular,” the space must be used continuously, not just on occasion. To fulfill the definition of “exclusive,” there must be absolutely no mix of personal and business use. Thus, the phone in your home office cannot be used for personal calls, nor the computer for personal emails.
Moreover, your home office must adhere to at least one of the following descriptions:
• It is your principal place of business. This means it is the place where you exclusively perform managerial or administrative activities, such as billing, ordering supplies, or making appointments.
• You generally receive clients or customers at the location.
• It is a separate structure, such as a detached garage.

There are two exceptions to the requirement that the home office is used solely for business purposes:

• You are running a licensed day care center in your home.
• You are using part of your home to store inventory or products for sale in the business.

In the two situations mentioned above, personal use and business use may be mixed under certain conditions.

If you meet the requirements for a home office deduction as defined by the IRS, then you may be able to deduct a percentage of the following:

• The real estate property taxes on your home
• Interest on your mortgage
• Depreciation on your home (if you own)
• Their rental payments if they are not the owner of the home
• Utilities
• Painting, and repairs
• Insurance for homeowners or renters
• Travel costs to and from clients and vendors

All of the home office deductions are calculated using the IRS Form 8829. Just make sure to keep good records as well as photos of the work area and any related documentation, such as a bill for a separate phone-line. Not only will this help to cut down the time it takes you to file your tax return, but it will also help you to maximize your deductions. Finally, you want to be sure that can adequately prove the existence and usage of the home office in the case of an IRS investigation.

For more information on the home office tax deduction, you should consult a professional tax adviser as well as IRS Publication 587: Business Use of Your Home.

About the Author: Gary Barzel is the manager of business development for Fastupfront. Fastupfront offers alternative small business loans and working capital for established businesses.