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 Home Office Tips
By James L. Silvester
In the past it was true that taking a home office deduction on your income taxes was a red flag to the Internal Revenue Service. No More. The growing bulge of home based small enterprises is a fact of life. The government is now actively promoting home based entrepreneurial businesses as an economic policy. So, don't be afraid to take that home office deduction. But be diligent and fair to Uncle Sam.
For example, if you live in a 2000 square foot house and you use your family room in the basement as a home office, and it is 400 square feet, you are in essence using 20 percent of your home living area as business generating floor place. So if your total housing costs including your mortgage, utilities, insurance, taxes, etc. is $20,000.00 per year, your gross deduction would be $4,000.00 and reported on Schedule C of your tax return.. However to play it safe, it would be wise to determine how many hours a day you actually generate income in that home office space. Let say its 8 hours per day and the additional 16 hours is used for personal use. That would reduce your deduction to $1,333.00 and better able to survive IRS scrutiny should they decide to take a look. But if the space is used "exclusively" to generate your income and not used for personal purpose, the $4,000.00 would be justified and would survive an audit.
The best thing to do is to provide a detailed explanation with your tax return and even include a simple drawing of your house highlighting your home office space and explain whether it is exclusive space as described above or how many hours out of the day you use it as office space and adjust accordingly.
Lesson: Take Stock Of Your Physical Living Layout In Your Home And Pick A Couple Of Places Where You Could Locate Your Office. Evaluate The Pros And Cons Of Each. Pick The Best Alternative
Quote: Location, Location, Location Is Even Important In Your Home.
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