Do you run your business from home? You might be eligible for home office deductions - Crawford Ellenbogen

If you’re self-employed and work out of an office in your home,
you may be entitled to home office deductions. However, you must satisfy strict
rules.

If you qualify, you can deduct the “direct expenses” of the home
office. This includes the costs of painting or repairing the home office and
depreciation deductions for furniture and fixtures used there. You can also
deduct the “indirect” expenses of maintaining the office. This includes the
allocable share of utility costs, depreciation and insurance for your home, as
well as the allocable share of mortgage interest, real estate taxes and
casualty losses.

In addition, if your home office
is your “principal place of business,” the costs of traveling between your home
office and other work locations are deductible transportation expenses, rather
than nondeductible commuting costs. And, generally, you can deduct the cost
(reduced by the percentage of non-business use) of computers and related
equipment that you use in your home office, in the year that they’re placed
into service.

Deduction tests

You can deduct your expenses if you meet any of these three
tests:

Principal place of business. You’re
entitled to deductions if you use your home office, exclusively and regularly,
as your principal place of business. Your home office is your principal place
of business if it satisfies one of two tests. You satisfy the “management or
administrative activities test” if you use your home office for administrative
or management activities of your business, and you meet certain other
requirements. You meet the “relative importance test” if your home office is
the most important place where you conduct business, compared with all the
other locations where you conduct that business.

Meeting place. You’re
entitled to home office deductions if you use your home office, exclusively and
regularly, to meet or deal with patients, clients, or customers. The patients,
clients or customers must physically come to the office.

Separate structure. You’re
entitled to home office deductions for a home office, used exclusively and
regularly for business, that’s located in a separate unattached structure on
the same property as your home. For example, this could be in an unattached
garage, artist’s studio or workshop.

You may also be able to deduct
the expenses of certain storage space for storing inventory or product samples.
If you’re in the business of selling products at retail or wholesale, and if
your home is your sole fixed business location, you can deduct home expenses
allocable to space that you use to store inventory or product samples.

Deduction limitations

The amount of your home office deductions is subject to
limitations based on the income attributable to your use of the office, your
residence-based deductions that aren’t dependent on use of your home for
business (such as mortgage interest and real estate taxes), and your business
deductions that aren’t attributable to your use of the home office. But any
home office expenses that can’t be deducted because of these limitations can be
carried over and deducted in later years.

Selling the home

Be aware that if you sell — at a profit — a home that contains
(or contained) a home office, there may be tax implications. We can explain
them to you.

Pin down the best tax treatment

Proper planning can be the key to claiming the maximum deduction
for your home office expenses. Contact us if you’d like to discuss your
situation.