One of the most frequently asked questions by small-business owners is, “Can I deduct expenses for my home office?” To deduct expenses related to business use of your home, you must meet specific requirements. The business part of your home must be:
- Used exclusively and regularly for your principal trade or business. If you meet with patients, clients or customers in your home, even though you also conduct business at another location, you may deduct home office expenses.
- If you are an employee, additional tests must be met:
- The home office must be for your employer’s convenience.
- You cannot rent any part of your home to your employer.
- There is a specific prohibition in Section 280A of the Internal Revenue Code. It states: If you are an employee of a business, you cannot take any deductions for renting space in your home to your employer.
- So what would otherwise make sense—renting the space to your business and taking the deductions—no longer applies. In fact, what should happen in this situation is a rental deduction by the corporation, but equal rental income with no additional deductions by the employee.
What Expenses Are Deductible
Deductible items include the business use portion of mortgage interest or rent paid, real estate taxes, insurance, utilities, maintenance and repairs, depreciation, and casualty and theft losses. Two methods are acceptable to calculate the business use portion of your home:
- Divide the square footage of your home used for business by the total square footage of your home, or
- Divide the number of rooms used for business by the total number of rooms in your home. This method is allowed if the rooms in your home are all about the same size.
Day-care providers, who work in their home, have special rules that may allow the deduction even though the same space is used for non-business purposes, i.e., it does not meet the “exclusively used for business” requirement.
For more information regarding this topic, please contact Henssler Financial at 770-426-9166 or experts@henssler.com
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
