Working from home is a dream that’s coming true more often than ever, and for female entrepreneurs looking to take care of business just steps from their bedroom it has a certain appeal. Enjoy more flexible hours, lighten your carbon footprint by skipping the commute, and maybe even take advantage of a sweet tax write-off to boot. However, don’t start counting your savings too quickly; there are a few things you need to know about home offices and the IRS.
When home buying and comparing property rates, it’s always appealing to spot a den or extra living space that could be turned into an office. What the IRS considers a “home office deduction”, though, might not be exactly what you have in mind. Here are a few things to consider:
1. The regular/exclusive use cause
In order for a home office to quality for Uncle Sam, it needs to be used regularly and exclusively for business purposes. It’s why your dining room can’t double as a home office and why you can’t just use it every now and then. How you’ll prove this should you get audited can get nasty fast. Make it clear that any home office space is used just for that purpose.
2. The “Principal Place of Business” rule
If you want to have a home office tax write-off, it needs to be used as your primary place of business. This means you can’t have an office anywhere else, so you either need to be telecommuting full-time or running your business from home exclusively. It can be a barn, studio, room or part of a room. All the IRS really care about is that wherever it is, it’s where “your office” is located.
3. Calculating percentage
You can’t write off 100 percent of your home as business usage, because that would mean it’s no longer a home. As such, the IRS requires that you calculate how much of your home is exclusively for business usage. There are no hard and fast rules, but you’re begging for an audit if you have over 50 percent of your home as your office.
4. The employer convenience factor
Also in order to have a home office, it needs to be a move of convenience for your employer. Of course, if you’re your own employer, that’s pretty easy to prove. You can’t actually rent out any part of your home to your employer, but you can certainly use it as your office.
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