Home Office Tax Deduction
In certain cases, a tax deduction may be taken for business use of a home. This is not limited to just an office. It also applies to various other uses. As long as the technical requirements are met, a percentage of home-related expenses may be deducted. These expenses include utilities, rent, insurance, depreciation, mortgage interest, and real estate taxes. The IRS defines "home" for tax purposes as any home business space, including a house, apartment, condominium, or boat. The term also includes separate structures on the property, including garage, studio, bard, or greenhouse. There are two requirements a person has to meet in order to claim expenses for the business use of his or her home (Carter, 2001).Requirement one is that a part of the home must be used regularly and exclusively for a trade or business. The IRS defines this as using a part of your home for business on a continuing basis, not just for occasional or incidental business. A few hours a day, on most days, is probably enough to meet this test. Exclusive use means that the portion of the house must used only for business. A room that is used for business and personal uses does count as exclusive
Once the total deduction is calculated, it is entered on Schedule C, "Profit or Loss from Business. So, if a deduction is taken yearly as a home office, it cannot be taken again when the residence is sold (IRS, 2004). These will qualify as long as it used strictly for business. An example of this is a studio or a converted garage or barn. The room does not have to be primary place where income is generated. It is good practice to keep an appointment book detailing all meetings with time, date, name, and purpose. The room must be either the principal place of business, a place to meet clients or customers, or a separate structure on the property. If the business only has one location, then the room automatically becomes the principal place of business. In addition to the regular and exclusive rule, the room must pass one more test. This should be kept for at least three years as evidence of the meetings in case the IRS asks for proof in the event of an audit (IRS, 2004). The room may be used to conduct other business activities, but personal activities are not allowed. " When submitting the tax return, both Form 8829 and Schedule C has to be attached to the Form 1040 tax return (IRS, 2004). It doesn't have to be the principal place of business or even a place where clients, customers, or patients are met. This is because once the deduction is taken, that part of the house is no longer considered to be part of the primary residence. This includes, but isn't limited to photographs of the office, receipts for all purchases, and a log of daily activities and meetings (Carter, 2001).
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