How To Take The Most In Home Office Deductions

Home office deductions are a great way to make normally nondeductible expenses like rent and utilities partially deductible. Here are some things to remember in order to take the most deductions for your home office.

1. Is your home office space “exclusive”?

The number one keyword here is “exclusive”. In order to take home office deductions starts with creating an exclusive space to conduct your business. It can be a space as small as a single desk or multiple rooms. However, the IRS requires you to exclusively use that space for business. If you do your invoicing on your dining room table, but you also eat in that room for Thanksgiving lunch, the personal usage nixes the business usage. Therefore, you would not be able to claim the dining room space as a home office deduction (IRS Publication 587).

2. Is your home office space your principal place of business?

Again, the IRS is particular about the word “principal”. You can only claim the home office if it’s where you do the majority of the work, or certain kinds of work. You may think that plumbers are losing out in this case. However, there is a provision that says it’s still a valid deduction if you use it “exclusively and regularly for administrative or management activities”. Examples of such activities would be billing, record keeping, ordering, writing reports, or booking appointments. A plumber, who spends most of his time fixing leaky faucets, still needs a primary place to do his administrative work. If that space is at his home office, then yes, he establishes a credible home office deduction.

3. Is your home office space accurately measured?

Your home office deductions will be a percentage of your home’s total square footage. Therefore, if your home is 2000 square feet and you’re exclusively using 200 square feet for your home office, you can deduct 10% of your rent or mortgage payments, utilities, and home owner’s insurance.

Many business owners see home office deductions as an “easy to fudge” piece of their business accounting. But be careful. The same factors that make this deduction easy to exaggerate are the same ones that invite scrutiny. I’m not saying that you should not take this deduction. No way! You should take every deduction available. However, it is my recommendations to keep backup documentation for validation.

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