-
- Win $100 in prizes!
-
|
New Office-in-Home
Rules May Allow You to Take this Tax Deduction
- Beginning January 1,
1999, the office-in-home deduction is available not only to those
who meet the old guidelines but also to self-employed people
who have no other location where they conduct substantial administrative
or management activities for their business.
© 1999,
by Jan Zobel, EA
If you're one of the many
small business owners who works out of your home but haven't
been able to deduct home expenses due to strict IRS guidelines,
new tax laws effective January 1 may change your eligibility.
Prior to January
1, in order to deduct a home office you had to have a regularly
and exclusively used space that was either the primary place
of work for this business, a place where you met with clients
or customers, a separate structure not connected to the house,
or the sole storage place for business inventory or product samples.
This meant that
people who used their homes for administrative work only, even
if a separate room was set up exclusively for the business, were
not able to take the potentially valuable home office deduction.
Consultants who work primarily at clients' offices, plumbers
whose principal place of work is at the job site, and psychotherapists
who see clients elsewhere but do their billing at home were among
the millions of small business owners unable to take this deduction.
Beginning January
1, 1999, the office-in-home deduction is available not only to
those who meet the old guidelines but also to self-employed people
who have no other location where they conduct substantial administrative
or management activities for their business.
In order to deduct
business use of your home under the new rules, you must still
have a space that is used regularly and exclusively for your
business. The home office does not need to be a separate room,
but must be a clearly definable space in which no personal activities
take place.
One rule that
hasn't changed is that home office expenses cannot be deducted
if you have a loss from your business or if the home office expense
would create a loss. However, any expenses you're unable to claim
this year due to having a business loss can be carried over to
next year's return.
You may wonder
whether it's worth bothering to claim a home office since, if
you own your home, you can already deduct the mortgage interest
and real estate tax you pay. There are three tax benefits to
taking the home office deduction. First, when you deduct personal
expenses (i.e. mortgage and real estate tax) as business expenses,
they not only reduce your income tax but also your self-employment
tax. Second, by claiming a home office, you're able to deduct
rent, utilities, insurance, and depreciation which you can't
otherwise take as expenses.
The third and
perhaps most valuable benefit is that having a home office allows
you to deduct more car expenses. Without a deductible office-in-home,
you generally cannot claim the miles you drive from home to your
first business stop of the day and from your last stop of the
day back home. This is considered non-deductible commuting mileage.
If you qualify
for and decide to take the home office deduction, calculate the
percentage of your home used for business. Add together your
rent or mortgage interest, utilities, maintenance, real estate
taxes and insurance and multiply the total by the percentage
you use your home for business. If you own your home, add in
depreciation on the business portion of your home. The end result
is your allowable office-in-home expense. You should keep in
mind that deducting a home office now may have tax ramifications
when you sell your home.
As you can see, there are lots of hoops to jump through in claiming
the office-in-home deduction. Despite the problems, this is a
valuable deduction to take if you qualify.
- The above article is excerpted
from Jan's
recently revised book,
Minding
Her Own Business: The Self-Employed Woman's Guide to Taxes and
Recordkeeping (Adam
Media Corporation) which is available for only $8.76 at
Amazon.com.
|