Here's what you need to know about home office deductions
If you use a room in your home to operate a business, you may be able to deduct certain expenses on your taxes.
According to the IRS, the home office deduction is for homeowners and renters and all types of homes are eligible.
There are two ways that you can calculate the deduction: the simplified option and the regular method.
Unlike the regular method, which requires you to calculate the actual expenses of the home office, the simplified option lets you multiply the prescribed rate by the allowable square footage of the office.
Regardless of the method you use, your home must meet two requirements in order to qualify for the deduction, which means you may want to ask: is it used for regular and exclusive use or is it a principal place of business?
1) Regular and exclusive use - a specific part of your house is regularly, not occasionally, used only to run your business. Both conditions (regular and exclusive) must apply.
2) Principal place of your business - this means that a substantial amount of your business is conducted at your home, even if you do business at an outside location.
For example, are you holding in-person meetings with patients, clients or customers in your home that are a normal part of your business? If so, you may be able to use the home office deduction.
You can also deduct for free-standing structures such as a studio, garage, or barn. These locations don't even have to be the principal place of business or the only places where you meet clients.
You should also consider this deduction if you have a separate, identifiable part of your home regularly used for storage (like for inventory and product samples), rental property, or a home daycare facility.
Keep this in mind: no personal, family and living expenses may be deducted. Trying to add personal expenses such as the rent, maintenance and repair of a home are where people tend to make common mistakes.
In general, home office deductions are based on the percentage of the home dedicated to the business.
Employees who use part of their home for business may qualify for the home office deduction, under certain conditions.
Go to the IRS website for the full explanation of deductions.
