Whether you’re a kitchen table CEO, a freelancer, or a work-at-home mom, you need somewhere to make the magic happen. Even if you don’t own your own business, you may need a place in your home where you can perform work for your employer. In some cases, that home office can make a difference on your taxes this year.

source: Elev8

The home office deduction is a popular way to decrease your tax bill. Like all deductions, you can subtract the amount you spent maintaining your home office from your total taxable income. The IRS applies your tax rate to your taxable income to determine how much you owe, so the less taxable income you have, the better your return looks.

Requirements

To qualify for the home office business deduction, you need to use that space as your primary and exclusive workspace. Primary means that this is where most of your business happens. Let’s say your employer has an office for you on his property and you have a home office. You can’t take the deduction because your boss already has a primary place for you to conduct business.

Exclusive means that you use this space only for your work. There should be a clearly defined separation between your personal space and your workspace. It doesn’t have to be a separate room or have a partition but it should be easily identifiable.

Percentages

Once you’ve determined that you can take this deduction, you need to figure out the amount of money you can subtract from your taxable income. It’s based on what percentage of your home is dedicated to your home office.

For example, let’s say that you have a 1000 square foot apartment and the room you use for your home office is about 450 square feet. That’s 45 percent of the total area and you can take 45 percent of the resources you spend on your home as a deduction. Now that includes the rent/mortgage of your home, the utilities, and the insurance on the home. Just remember that even if it’s a household expense, it must be used for business use to be deductible. If you have telephone service, you can’t claim a percentage of that service if you don’t use it to make business calls.

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