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3 Things You Need to Know About Home Office Tax Deductions

3 Things You Need to Know About Home Office Tax Deductions

More and more small business owners are learning the benefits of using a home-based office versus facing the high costs of rented space. When it comes to filing your taxes, many small businesses fear that they might end up face-to-face with an IRS auditor because some believe that having a home-based office makes you more vulnerable. While the Internal Revenue Service disputes this, there are a few things you should know about establishing a home office and home office tax deductions.

Understand What is Defined as a Home Office

San Francisco tax expert and published author, Jan Zobel, states that one of the most important rules for any business owner is to understand what the IRS defines as a home office. Their description specifies that the space must be for your business, and nothing else. This means that if your so-called office also happens to be a guest bedroom or be used for family computing, then it is not deemed tax-deductible. If you only use a partial amount of one room as your office then you must determine the percentage of square footage it accumulates and only claim that amount as a home office tax deduction.

Business Supplies Qualify as Deductions

If you feel that the definition of your home office could be a gray area for the government, take comfort in knowing you can still tax deduct your business supplies. Keeping itemized receipt of all purchases made specifically for your business is one deduction that should never be skipped. Business owners are able to claim any purchase from pens or index cards, two stamps and a printer, to the purchase of a new computer system as a tax deduction. Once again, it is important that these purchases be specifically for your business and nothing else. If your work computer is also used to watch movies or help your child with school research, then you must determine what percentage of the time spent on the machine is used for business and only tax deduct that amount of the cost.

Understand Depreciation Values

Larger items that you may purchase for your business such as machinery, furniture, and even computers can be deducted at 100% of the cost in the year of purchase. After that, business owners should use the Section 179 tax code guidelines to help them determine the depreciation value of these items and calculate the deduction amount. Items such as fax machines, printers, and computers can earn you deductions for up to five years.

Other deductions such as mileage, vehicle wear and tear, and client lunches are additional home office tax deductions which you can take advantage of. There are specific guidelines set forth by the IRS for each of these items. All necessary information can be found to the IRS website but it is often difficult to decipher or understand. Hiring a taxation specialist helps small business owners through the tax filing process to ensure everything is completed properly the first time. If at any point in owning your business you find yourself liable for an audit, or are concerned that you may have left yourself vulnerable, the tax experts at Attorneys Tax Relief can assist you dealing with the IRS.