What can I write off as home office expenses?

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Individuals 12 months 2 Answer 200 views 0

About Kazim Qasim, EA, CTC

Tax Obesity Surgeon Kazim has over thirty years of experience in the accounting and tax profession and focuses on a fun term he calls tax obesity. He was formerly the CFO of a multi million dollar security corporation prior to founding his tax practice in 2006. Kazim focuses on advanced tax reduction strategies that help clients reduce tax obesity and save thousands of dollars annually. It is all about smart tax planning strategy.

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  1. Kazim Qasim, EA, CTC

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    Home office expenses are probably one of the most misunderstood deductions in the entire tax code. For years, taxpayers feared it raised an automatic audit flag. But Congress has relaxed the rules, and home offices now attract far less attention. Your home office qualifies as your principal place of business if:

    1) You use it “exclusively and regularly for administrative or management activities of your trade or business”; and

    2) “You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.”

    This is true even if you have another office, as long as you only use it occasionally for administrative or management activities. Claiming a home office lets you deduct the “business use percentage” of your mortgage interest or rent, property taxes, utilities, repairs, insurance, garbage pickup, and security. You’ll even get to depreciate part of your purchase price.

    Also, claiming a home office even boosts your possible car and truck deductions by eliminating non-deductible commuting miles for your business. Do not miss valuable deductions by failing to factor in the appraisal for the home office deduction.

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    Just to add a caution to Kazim’s answer – be honest with your deduction expense claims.  Be sure of your audit defense before you make outlandish claims.  There are 4 tests:  Exclusive use, Regular use, Trade or business use, and Principal place of business test (i.e. meeting clients, storing inventory, conducting administrative & managerial tasks, etc.)  Measure the space that complies with this and only claim that percentage of the total.  Don’t include items like pools (and pool maintenance) unless you REGULARLY meet with or entertain clients in the pool area.  How would you justify the Exclusive use test to an auditor?   It’s a bit disingenuous to claim a % of water or trash collection utilities unless its part of your work, like a dentist or a daycare.  In other words , don’t push the privilege, like a recent client who claimed 50% of his home (exclusive use?) . The biggest deductions, mortgage interest and property tax, are deductible anyway on Schedule A.

    If it’s for YOUR convenience, not your employer’s (2106), be VERY careful.

     

     

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