If
you take the home office or home business tax deduction allowed
by the IRS be careful. Many taxpayers who took this deduction
in the past were found to not actually have a business, but
felt it was a convenient way to save money on taxes. Because
of this the IRS has clamped down.
Deducting expenses related to the use of your home as a
business has been tenuous at best. The IRS cracked down on
home business deductions many years ago, when they discovered
that many people took the home office deduction, but did
not have a home business. So beware that your home business
deduction may raise a red flag for an audit with the IRS
if you cannot verify yourself as a substantial business,
with the home office environment giving the actual look and
feel of an authentic business.
In addition to the red flag potential for home business
deduction, which can get you an audit, you should understand
the lost depreciation when you sell your home, your tax accountant
will explain depreciation to you in depth.
There are minimum requirements you MUST meet to deduct a
home office on your taxes.
Here are some:
1. You must use the part of the home regularly and exclusively
and regularly for your trade or business. That means no doubling
as a home theater or guest room.
AND ...
2. The home office must be your principle place of business,
OR where you regularly meet or deal with customers OR clients
in your trade or business, OR a separate structure (not attached
to your home), you use in connection with your trade or business.
Once you have determined that you qualify for a home business
deduction go to www.IRS.gov, and search publication 587.
In this publication you will find the excruciating details
about deducting your home office and figuring out the percentage
of your home office you can deduct. You will also find exactly
what you can deduct in your home office. You will also find
appropriate business forms.
Usual deductions you can take will be for insurance, rent,
repairs, security system, utilities, and telephone. Remember,
you can ONLY take the percentage, which you can prove relates
to your business.
You will find a "sample" form 8829 filled out
for you to follow as a guide at www.IRS.gov, read it thoroughly
before going to a tax preparer. Form 8829 is titled, "expenses
for business use of your home." You will find home business
tax forms and sample home business tax forms filled in, as
well as all the rules you must follow. Read publication 587
so you can understand the home business deductions you are
entitled to before going to a tax preparer.
In summary you can take both deductions and depreciations.
The deductions will be calculated as a percentage of use.
The depreciation schedule is for homeowners. It is important
to understand depreciation, since it may be added back in
as cost, when you sell your home.
Related Links:
Business and Financial Guide
IRS Publications and Forms
Lois Center-Shabazz is the founder of MsFinancialSavvy.com
and author of the 3-time award-winning personal finance book,
Let's Get Financial Savvy! ISBN #0971979502.
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