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Reclaiming Home Office Deductions: Tips and Tricks

Accounting, Bookkeeping, Taxes

“The first mistake people make when it comes to home-office deductions is they fail to claim them,” says Bob Meighan of San Diego, a lead CPA for a famous company in USA. 

Many business owners with home offices waive off the tax breaks because they fear that the write-offs will trigger a tax audit and bring accountability on their shoulders. Tax experts say that now home offices no longer set off alarms at the IRS (Internal Revenue Service). Although, there are some parameters one needs to examine, when it comes to checking if you are eligible for the home-office deduction. Millions of Americans have shifted to worked from home this year, due to the COVID-19 pandemic. 

The endorsed tax break is generally only available for the people who are self-employed, gig workers or independent contractors. As a small business owner, whichever industry your business may belong to, you can by all means claim this deduction while filing your taxes. 

Expenses You Can Claim

There are two types of expenses that you can deduct:

The first, direct expenses, lets you deduct 100 percent of costs linked specifically with your home office. It includes everything from hiring someone to paint/ renovate your room to buying equipment like work computer, office supplies or cell phone dedicated for the home-based business.  

Businesses can also write off remodeling, if the home office is being used to meet with clients or customers. This is because, logically, the appearance of the house is important to the success of the business. 

The other deductible home-office expenses are indirect expenses. These are proportioned equally, based on the dimensions of the home office space including your utility bills, property insurance, mortgage and a home security system.  

The write-off amount can be calculated in two ways. First is calculating the portion of the house that is being used for office work. That is then taken as a percentage of the whole house area and the business owner is eligible to write-off that percentage. 

Second method is counting the total number of rooms and taking the number if rooms as a portion of the house used for home office. The business owner can write-off that portion only. Out of these two, the percentage method is more widely used.  

However, the monthly charges/ fees for the primary phone line in your home cannot be deducted, though long-distance calls for work, call waiting and call forwarding can be claimed. Also, if you have only one cell phone being used partly for work and partly for personal things, it’s a gray area that needs to be discussed with a tax advisor. 

Tips and tricks for claiming the deductions: 

Taxpayers and business owners must solely and regularly use the dedicated part of their home as their primary place of business-related work. This means, a place where you greet clients or customers and have meetings, conduct your business, store supplies and inventory etc.  

The good thing is that you don’t have to be the homeowner to claim the deduction — apartments, mobile homes, boats or other property are also eligible according to the IRS. 

Another possibility is to claim only a part of the deduction, which accounts for the time the business spent being operated in a certain location. The business owners must have proper documentation for all home office spaces that were used within a tax year. What better documentation can there be than an actual picture of the work space. This was, once the deduction has been claimed and IRS initiates an audit, owners can have a solid proof. 

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Accounting, Bookkeeper, Bookkeping, cpa, Home office deductions, Online CPA, Tax Deductions, Taxes

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