According to the Small Business Administration, about 50% of all businesses are home-based. If you are one of the many owners of a home-based small business, consider whether your home office meets the IRS requirements for the home office deduction, which is a sometimes overlooked way to reduce taxes.

How Do I Qualify for the Home Office Deduction?

Although the home office deduction was eliminated for employees as part of the 2017 tax reform, owners of home-based businesses may still take advantage of this deduction if they meet these requirements set out by the IRS.

The IRS has clarified that your home office is likely to qualify if you use it for the administrative or management activities of your business and do not have another fixed location where you engage in those activities. So, even if you do most of your work elsewhere, if your company has just one office, which is in your home, you probably will pass the test if you use it for business-related administrative or management tasks. For example, if you have a business that installs underground pet fence systems, and spends much of your time installing fences at your customers’ property if you conduct all of your administrative and management activities in your home office, it is likely to qualify as your principal place of business.

  • Exception. If your home office is in a separate structure not attached to your residence, you can qualify for the home office deduction if you use the space exclusively and regularly for your trade or business, even if it is not your principal place of business or a place where you meet with customers or clients.

If you have a home office that qualifies for the deduction, you can deduct expenses such as the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs.

What to Do Next

If you are uncertain whether your home-based small business is eligible for the home office deduction or have other tax-related questions, we’ll be happy to provide guidance about how to maximize your tax savings and meet your legal obligations. Please contact our office today to set up a meeting.

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