Home Office: Can you get the tax deduction?

By Lorianna Kastrop, Vice President, The Kastrop Group, Inc. Architects

640px-Home_Sweet_StudioTax time is upon us, and a deduction that often causes confusion is the “home office” deduction. If you are planning to remodel your home and want to include a home office that is tax deductible, it is important to get the facts. Here is an article with valuable information and clarifications from the National Association of Home Builders: http://eyeonhousing.org/2015/03/working-at-home-who-claims-the-home-office-deduction-2/

For telecommuters, the home office must be established at the request of your employer, or for your employer’s convenience. If it is for your own convenience, it is unlikely that you will be able to claim the deduction.

If you claim a home office deduction, be aware that it can raise a red flag with the Internal Revenue Service. In order to be deductible, the business use of the room or space must be “regular and exclusive”. Using it as a guest bedroom, home entertainment area, or other purpose, even occasionally, could negate the deduction. It is also easier to pass the “exclusive use” test if it is your principal place of business or detached from the main dwelling. Local zoning ordinances may require a dedicated parking space for customers, clients, or patients of your home business. You may need to make the entrance accessible for those with physical disabilities. Your architect can help you determine whether your home business location is properly designed and can legally operate in a residential neighborhood.

What about the classic “start-up in a garage” scenario? Again, don’t use the area as a garage, or for storage, or any other domestic use. If you are starting your business on a shoestring with a Kickstarter campaign from your home, be very careful and get professional advice from an attorney and an accountant. Many new businesses have been tripped up by IRS scrutiny and received an unexpected tax bill for revenue received from crowdsource campaigns.

You will also want to take into account what the neighbors are doing during the day. Will you be disturbed by leaf blowers, lawnmowers, dogs barking or other noises? Perhaps you will require some soundproofing for the home office. Does it have good ventilation and lighting? For energy savings, you may want a separate thermostat and a heating, ventilation and air conditioning (HVAC) system that only affects the home office area during the day, rather than heating and cooling the whole house. These are also considerations that your architect can help you determine and price out.

A home office can be an appealing alternative to commuting, or leasing commercial space for your small business in a tight real estate market. But be sure to do your homework so that you qualify for the tax deduction and you don’t experience unanticipated problems. Here is a good place to start looking at the I.R.S. guidelines: http://www.irs.gov/uac/Top-Six-Tips-about-the-Home-Office-Deduction. Good luck with your business endeavor!

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