Are you eligible to claim a home office deduction?

There are several perks to being a business owner, such as the ability to set working hours, call the shots in a project and find a more flexible work-life balance. Another common benefit of owning a company is being able to claim a home office deduction if the business is run out of the home. This type of write-off is a legitimate deduction claimed by many taxpayers each year. However, the rules to qualify for this perk are very specific, and it's important to understand the eligibility criteria and work with a tax preparation service to ensure all the conditions have been satisfied.

In order to claim the deduction, the portion of an individual's home that they plan to claim as a home office must be used "regularly and exclusively" for their business needs. This means that part of the house must be used as either their principal place of business for their trade or company, the place where owners meet with clients, customers or patients in the normal course of their trade or a separate structure used in connection with a trade or business that is not attached to their main property. The latter may refer to a basement, garage or attic apartment that serves as an office.

Although the rules are clear, it can be easy to misunderstand the "regularly and exclusively" rule, and claim a home office that does not truly fit under the IRS rules. For this reason, it's important to understand that, in order to qualify, no other non-related business activity can take place in an area that owners are claiming as a home office. This means that individuals cannot use the office and work computer for a couple hours a day, and then allow their kids to use the space and equipment to do homework for the other portion.

Those who qualify for the benefit can deduct several work-related expenses for that particular area of space, including rent, mortgage interest, casualty losses, utilities, insurance, depreciation, maintenance and repairs. Owners should keep in mind that when it comes to deducting expenses, they may only deduct those associated with that portion of the home used for their business, rather than the entire property.

Lastly, employees may also qualify for a home office deduction if they meet the criteria outlined above. However, they may only qualify if they work from home because their workplace does not have space available for them to complete their job functions. Those who simply work from home because it is convenient may not qualify. In these instances when determining eligibility are difficult, it can be helpful to consult a tax preparer for assistance.

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Liberty Tax Service provides computerized income tax preparation and electronic filing. Each tax office offers customers audit assistance, a money back guarantee, and free tax return checking.

About Liberty Tax Service 
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history.  Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns.  With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.   

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.