Many entrepreneurs are working from home to take advantage of not having to pay extra rent for an office and to get a tax deduction on their home office. Do you use part of your home for your business? If so, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. The home office deduction is available for homeowners and renters, and applies to all types of homes, from apartments to mobile homes. There are a few basic requirements for your home to qualify as a working from home tax deduction:
1. Regular and Exclusive Use
To qualify for work from home tax deductions under the regular use test, you must use a specific area of your home for business on a regular basis. Incidental or occasional business use is not regular use. You must consider all facts and circumstances in determining whether your use is on a regular basis. To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.
2. Trade or Business Use
To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use.
3. Principal Place of Your Business
You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. To determine whether your home is your principal place of business, you must consider:
The relative importance of the activities performed at each place where you conduct business, and
The amount of time spent at each place where you conduct business.
Your home office will qualify as your principal place of business if you meet the following requirements.
You use it exclusively and regularly for administrative or management activities of your trade or business.
You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.
Additional tests for employee use: If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. You must meet the tests discussed above plus:
Your business use must be for the convenience of your employer, and
You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.
Want to learn about all the home office tax deductions that you possibly may be able to deduct? Want to learn tax strategies that every entrepreneur should know? Join NCH’s FREE webinar hosted by Founder and President of Nevada Corporate Headquarters, Cort Christie.
What: FREE Webinar on Tax Strategies that Every Entrepreneur Should Know
When: February 25, 2016
Time: 1 p.m. PST
Bonus: Every attendee will receive: NCH’s 2016 Tax Checklist – Filled with important dates and events for tax preparation
SPACE IS LIMITED! Click HEREto register and to learn more!