Q: Can I Claim a Tax Deduction For a Home Business Office?
— Prospective Small Business Owner
A: As a home-based business owner, you can derive a benefit from a home office in one of two ways: 1) you can complete IRS Form 8829 and deduct part of your mortgage or rental expenses on Schedule C of your business tax return, or 2) if you rent, you can have your business enter into a lease with your landlord for part of the rent and deduct that expense as a business expense.
In either case, the portion of the home used for the business must be used exclusively and regularly for that purpose. The space can be for administrative functions, production activities or storage space. The amount of the space is determined as a proportion of the home’s total square footage, and then that proportion is applied to rent, mortgage interest, utilities, insurance, property taxes, and repairs.
To spare taxpayers the inconvenience of computing the deduction for each expense category, the IRS provides a “safe harbor” option. Under this provision, taxpayers may take a $5 per square foot deduction that covers everything. This option, however, may only be used for a deduction from income. If you reimburse yourself for expenses, your reimbursement must be for actual expenses.
One thing to remember is that if you itemize deductions on your personal tax return, you can claim mortgage interest and property taxes in full. If you reimburse yourself for home office expenses, you must reduce your schedule A deduction by the amount of the reimbursement for those expenses.
Want to learn more about the home office deduction or how you can maximize other tax deductions and recapture a big part of the money you are paying right now to the government? Contact a Creative Business Lawyer® today. Creative Business Lawyers® offer a complete spectrum of legal services for businesses — including evaluating all of your legal, insurance, financial and tax systems — and can help you plan for your business expansion. Ask about the LIFT Start-Up Session, which includes employment structuring, financial, and tax systems from the ground up.