With more and more people expected to be self-employed and working from home, knowing the ins and outs of the home office deduction can make all the difference between a refund – or an audit.
The Illinois CPA Society offered a number of helpful tips to help home-business-owners (and their advisors) be sure they’re getting everything back that they can. (A slideshow version of this story is available here.)
One of the most important things to be sure of before you try to claim the deduction is that some part of the home has to be exclusively and regularly used as the principal place of business. A mixed-use area, like a kitchen, won’t qualify.
The simplified option
Self-employed folks with an office in their home don’t need to do a lot of calculations and add up all their home-office-related expenses – the IRS now offers a simplified option based on the size of the office: You take a standard deduction of $5 per square foot of workspace, up to 300 square feet.
You can go with individual expenses or the simplified option, whichever is larger, and you can change from year to year.
Some of the business owner’s heating, electric and utility bills can be deducted, and phone, Internet and other information services may qualify, too. The ISCPA notes that separate Internet connections and phone numbers can help keep track of expenses.
An office isn’t an office without office supplies — which is why computers, printers, toner, paper, paper clips, staplers, staples, staple removers and other critical equipment may also qualify.
Furniture and upgrades to the home itself, if related to the office, may also be deductible.
Many of those with home offices will find themselves travelling for business purposes – even if it’s just driving across town to a client. Parking, tolls and mileage (at 54 cents a mile for business-related travel) may all be deductible, to say nothing of airfare and hotel rooms.
The Illinois society recommends keeping expense records for at least three years after filing, or two years after paying taxes, whichever is later. Among the records home-business-owners should be holding onto are cancelled checks, bank statements, vendor invoices, bills, receipts and mileage logs.
More information on having a home office is available in IRS Publication 587.