Qualifications for a Home Office Tax Deduction

Qualifications for a Home Office Tax Deduction

The IRS has three specific qualifications for home office deductions for your LLC: you must use a specific area of your home regularly and exclusively as your primary place of business.

The first requirement is that your home office must be a specific area of your home. This does not mean that it must be a specific room; only that the area is identifiable and clear. The best way to accomplish this is to have natural dividers that enclose your home office area. For instance, hanging partitions or walls will help clearly define the space.

The second requirement is that the home office is used regularly and exclusively for business. This means that you must use your home office on a regular basis. In other words, you cannot just use your home office when you want to, but must actually make the home office a place of regular business. There is no set definition for what "regularly" means to the IRS, but your use of your office should be enough that it becomes integral to how you run your company.

Additionally, the home office area of your home must be used exclusively for business. If your kids occassionally play in your home office, you may not use it for a deduction. If you occassionally check Facebook in the evenings in your home office, you may not use it for a deduction. If you pay personal bills in your home office, you may not use it for a deduction. The home office must be exclusively for business use only.

The last requirement that the home office be your primary place of business does not mean that the majority of your work must take place in the home office. Rather, the home office must be the place where you conduct many administrative activies connected to your business, such as record keeping, bill paying (business bills only!), etc. This requirement is also fulfilled if you regularly meet clients or customers in your home office.

Home office deductions are one of the most frequent causes of an IRS audit, and The LLC Company can help you make sure you take your LLC's home office deduction correctly. If you can, you should also hire a competent business law attorney or accountant to review your home office and ensure you meet all of the IRS's requirements. Failing to meet even a single requirement may disqualify you from taking the deduction. Incorrectly taking the deduction may subject you to fees, fines, penalties, and interest charges from the IRS.

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