Working from home has become a popular alternative for many given its convenience and the cost saving nature. In addition to these benefits, people who work from home offices are also able to claim tax deductions both when the person is self-employed or is a employee working for another company. However, in order to make these claims, there are certain criteria that need to be fulfilled and this article will discuss these issues one by one.
The basic requirements
The basic requirement for anyone to claim for home office deductions is the exclusive use of the area designated as the home office for specific business needs. Thus, a person setting up a computer in one corner of the bedroom for printing invoices and other documents sporadically may not be able to claim home office deductions. However, the tax office does not require the person claiming for home office deductions to demarcate the place of work and maintain exclusivity of the area from the rest of the house. However, the requirement is to use the area mentioned regularly and constantly for defined business purposes rather than for normal household activities or for any other purpose.
The acceptable uses of a home office for tax deduction purposes
When it comes to the functionality of a designated home office, the person making use of it can utilize the same for meeting with clients or customers during the normal course of the business. While some home offices may function as the principle business premise, some would function only to handle the managerial or administrative functions. These functions include bookkeeping, record keeping, ordering supplies, setting up appointments, conduct billing operations…etc. However, according to experts, the tax office would want the home office to be the only place that could fulfill the said functions in order to accept tax deduction claims.
Status of employees when claiming for home office tax deductions
With regard to the employees who make use of home offices for conducting their day to day work, it is possible for such places to claim home office tax deductions if the employees concerned are not given space at the workplace or else the circumstances demands having such home offices. However, working from home for the convenience per se would not qualify a person to claim home office deductions.
Expenses that can be claimed through tax deductions
Among some of the expenses that can be deducted, a portion of the real estate taxes, deductable mortgage interest, rent, utilities, depreciation, insurance as well as painting and repairing of the home office could be highlighted. However, the amount of deduction would depend on the percentage area used from the entire area available at the location.
Application process for home office tax benefits
Following evaluating the eligibility for claiming home office tax deductions, self-employed persons can make use of the Form 8829 to figure-out the home office deductions and report the same according to Schedule C. Employees on the other hand should make use of the IRS publication 587 to calculate the deductable expenses and report the same according to the Schedule A. These forms and schedules are available in the IRS website.