What Is a Home Office?
A home office is a room in your home, a portion of a room in your home, or a separate building next to your home (such as a converted garage or barn) that you use exclusively and regularly to conduct business activities. This definition is important, because you may be able to deduct part of your housing expenses (such as rent, utilities, and insurance) on your federal income tax return if you have a home office. This deduction (or group of deductions) is known as a home office deduction. To take the deduction, you’ll need to file Form 8829 with the IRS. To even consider the home office deduction, though, your at-home business activities must involve a trade or business–a hobby won’t do. Now let’s consider the IRS requirements. To qualify for a home office deduction, you must meet two threshold tests–the place of business test, and the regular and exclusive use test.
The key to the deduction is the phrase “principal place of business.” A home office needs to be the exclusive office of the business person. “You can’t have two offices,” says Larry Rice, director of strategic consulting at Newton, Mass.-based accounting firm Rodman & Rodman. There is no square-footage requirement, but the space needs to be business-specific. For example, a psychologist might greet clients in her living room where there is a television, a foosball table and a sofa. That room wouldn’t qualify for the deduction. However, the book-lined, tissue box-filled office down the hall, where the session takes place, would qualify. “As long as it’s clear that [the office] wouldn’t have another use,” it would qualify for the deduction, says Rice. The home office also needs to be in use for the convenience of the employer–not because an employee prefers to work a couple of days out of the house. Additional Considerations Another complicating factor: depreciation expense. Any depreci
Related Questions
- I already work in a Reitmans (Canada) Limited store location. How can I apply for an entry-level position at our Home office?
- If money is obtained from another funding source (eg Home Office to reduce crime) can it be used for other purposes?
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