Tax Deduction : The Home Office
April 8th, 2008 | Posted in Business.
Photo by Paladin27
A home office has its grandeur benefits, most notable the enormous tax deductions and write-offs that can be obtained. A home business operates just like a real business therefore it qualifies for tax breaks. While a little effort may be needed to prove to the government that the business is real- it is very much worth the drastic deductions that can be taken.
An important element in the home office deduction approval is whether or not the space is exclusive and regular. Regular means that the space must be used on a regular basis, while exclusive means that the space must be used only for business reasons- not personal ones. If the office is included in a personal area, a separation between personal space and business space must be taken into effect.
The benefits of the home office are quite generous indeed. If qualified, tax payers can write-off depreciation of the house, mortgage, rent, real estate tax, insurance, utilities, phone service and even wages for domestic help. This is not including the regular business deductions that can be taken- which are already substantial. Obviously, clearing out a room for business use is well worth the trouble.
Proving to the government that the room is a home office isn’t necessarily hard- a spare room isn’t even needed. Some have managed to get by with hanging a curtain up, the separates a normal room into two halves. One side would be used for personal use, the other business use. In the end, the division of home and work can save money- but also helps psychologically, as the separation between home and work is vital to relaxation and stress levels. This workaround may not seem professional, but the money saved from taxes and deductions is very well worth the strain of putting a curtain up.
Sam Wyatt
April 9th, 2008 at 12:08 am
Hi,
Thanks a tonne for this wonderful information. It has been very useful for me.
Allan
April 9th, 2008 at 9:23 am
You’re welcome Sam.
Mike
April 9th, 2008 at 9:42 am
My CPA talked me out of taking the home office deduction for the year I was planning to sell my home. Normally you don’t pay tax on the gains of the sale of your primary home. By claiming the home office deduction, your business will have to pay taxes on its portion of the gain. Just something to keep in mind.
Allan
April 9th, 2008 at 10:01 am
Mike,
Those that file their taxes on a yearly bases usually don’t have to worry about gains. Unless you do sell your house in that tax year.
Allan
April 11th, 2008 at 2:42 pm
And remember to always consult your accountant…