Business owners who use a portion of their home for business may benefit from using the home office deduction when preparing their income taxes. Claiming a deduction for a home office often reduces tax liability. However, the IRS has strict guidelines for claiming a home office deduction on your tax return. A Maryland tax attorney can help you determine if you can claim a home office deduction and the best way to maximize tax benefits for this deduction.
Do You Qualify for a Home Office Deduction?
The qualifications for a home office deduction are strict but straightforward. There are two basic requirements for using the home office deduction.
Exclusive and Regular Use
The first requirement is exclusive use of an area for business purposes. The area cannot be used for other purposes, or you do not qualify for the home office deduction under the exclusivity requirement. The IRS is very strict about the exclusivity requirement.
If a spouse uses the office a few hours a week or children use the office for a place to do homework, the area does not meet the exclusivity requirement. Exclusive use rarely prohibits all personal use of the space. In most cases, if the personal use does not exceed the level of personal activities that would be acceptable in an office building, the area probably meets the exclusive use requirement.
If an area meets the exclusive use requirement, it typically meets the regular use requirement. There is not a set number of hours you must use the home office to qualify for the deduction. However, occasional use of the area may not qualify for the deduction. Using a home office for a few hours each day usually qualifies for the regular use requirement.
Principal Place of Business
The second requirement for the home office deduction is the principal place of business requirement. Your home office need not be the only location for your business, but it must be the primary place you conduct business. Meeting with clients would qualify as conducting business in your home office. However, performing management and administrative chores also qualifies a home office as a principal place of business.
How Can You Take Advantage of the Home Office Deduction?
There are two ways to take advantage of the home office deduction.
The simplified method is the easiest way to claim the home office deduction. To use the simplified method, you multiply the square footage of your home office by the current rate ($5 for 2018) to arrive at your home office deduction. For instance, if the home office is 200 square feet, the deduction would be $1,000. However, the maximum deduction using the simplified method is $1,500. Therefore, the regular method may offer more tax benefits for some individuals.
With the regular method, a percentage of expenses are allowable based on the square footage of the office. For instance, if the square footage of the home office is 10 percent of the entire square footage of your home, you should be able to deduct 10 percent of the indirect expenses related to your home, such as utility payments, mortgage payments, and some home improvements (such as entire roof replacement). Allowable direct expenses that relate only to the home office are 100 percent deductible.
Ask a Maryland Tax Attorney for Help
There are exceptions to the general rules for a home office deduction. A Maryland tax attorney can answer questions and provide guidance about claiming a home office deduction. Contact Thienel Law today learn more about the home office deduction. Maryland tax attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.