Proper Ways to Deduct Home Office Expenses in Newburgh, NY

Proper Ways to Deduct Home Office Expenses in Newburgh

, NY

Working from home has many benefits; one is being the ability to deduct certain operating costs on your tax return. Many people either fail to see this deduction or choose not to take it for fear of causing a problem with the IRS. Others are scared by the record-keeping. If you think you may be allowed to the home office expense deduction, follow the steps below and calculate your tax savings. If at any point you are unsure whether or not a particular expense is allowable, either use the given reference sources or ask your local tax advisor.

The Internal Revenue Service allows some deductions to individuals who work out of their homes. The rules about these deductions are stringent, though, so it is a good idea to know them in detail before claiming any of them on your income taxes.

To declare any deductions, your home office should fall into one of the following categories: used wholly and regularly as your principal place of business; used wholly and regularly by your clients for meetings or to conduct other business; or is separate from your home and used wholly and regularly in the course of your business, as in a darkroom, a greenhouse or a studio.

Limited Deductions

The acceptable deductions cannot go beyond the gross income you get for the business that is carried out in the home office minus the deductions that are allowed in spite of business use, such as mortgage interest and property taxes, and other deductions you are taking for the business. In other words, you cannot form a business failure with a home - office deduction.

Deductible Expenses

Some of the expenses you can subtract for usage of a home office include: rent, utilities, depreciation on business furniture and depreciation on the business building. The amount of these deductions is verified by the percentage of your house the home office occupies.

Other Considerations

You are allowed home-office deductions if you are a worker and your home office is used for your employers expediency and the office qualifies under the general rules.

An indirect cost is one that concerns the cost of the operation your business, even if it is not necessarily acquired as a direct result of running your business. In order to comprehend how much is allowed, do the following:

Compute the percentage of your home used solely and often for business. There are two ways to make this computation:

1. Take the square footage of the office space and divide it by the total square footage of the house. For instance, if your home office is 180 square feet, or 12 x 15, and your home is 1200 square feet, the business use percentage is 180/1200, or 15%.

2. If the rooms in your house are almost the equal size, split the number of rooms used for business by the total number of rooms.

Now that you know the business use percentage, you will use it to apportion your indirect costs. Take the total amount for each of your indirect expenses and multiply it by your business use percentage.

This is a guide to the deductibility of home office expenses. It is not the last word for everyone. You must also realize that the tax law changes on a regular basis. You should check with a tax professional before following the information presented here.

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