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Is working from home the same as a home office deduction?

February 24, 2023

This question has been coming up quite a bit lately, so I thought its worth revisiting.   The question is the home office deduction. Do you have a legitimate home office and therefore do you have a legitimate home office deduction?

Working from home does not always mean that you have a home office.

If you do have a home office or business use of your home that deduction is calculated using Form 8829.    

Right there at the start of the Form are two very important words that help define a home office – Exclusively and Regularly.

That means that you use your home office regularly and you use it exclusively, which means you only use it for work.

It does not mean that half your dining room table is your home office for work because nobody is allowed to sit there but you.

It does not mean the left half of the sofa in front of the coffee table is yours because that’s where you work from home.

It does not mean half your bed is your home office because you spread your papers out there and work. I've heard those before and I am pretty sure that you would not win that position in an IRS audit.

However, it does not mean that you have to have a wall around it. Your home office may be something as simple as a desk in the corner of a room that you regularly and exclusively do the work for your small business.

So in that case, you're going to have to figure out what's an appropriate area for that home office area.

Now if you work from home and you have an office somewhere else in a typical place of business, that gets a little bit more trickier. There is some guidance out there that sounds like that could be a possible deduction but this article is not going to get into that detail.  If you think that might apply to your situation check with your tax preparer.

Form 8829 is used if you are a Schedule C tax return filer on Form 1040, your personal return.  What happens if you own an S Corporation or a partnership but its also a home based business?

The same methodology can apply to calculating a deduction amount as well as another approach of the business reimbursing you for the cost of the home office.

That’s not complicated, but goes beyond the scope of this article so if you think you might qualify or benefit from that make sure to ask your tax return preparer.

If you do think that you qualify for a home office deduction there are several pieces of information that you have to gather and some of this information may not be in your business books. So that's why it's also important to keep a good record of your personal finances because it becomes a source for potential business deductions.

You're going to need to know what the area of your office is and what percentage that is of your home total area. So for example let's assume that you've got an exclusive and regular work area of 100 square feet and the total area of your home is 1,000 square feet.  So your business use is 10% of the total area of the home.

Now you can look at taking 10% of your mortgage interest payments, (not the whole mortgage payment), utilities, landscaping, repairs, homeowners insurance, internet, phone system, and if you rent instead of own, then your rental payments.

Perhaps you bought equipment specifically for that home office area and that can be a deduction as well.  

It seems to be a fairly common belief that people think that if you claim a home office deduction there is higher likelihood of getting audited.  There is no evidence of that.

While no one wants to go through an audit, the only people that should fear one are those who have poor documentation and those who are not reporting legitimate deductions and pushing the envelope on deductions being claimed. 

If you are claiming legitimate deductions and if your documentation is providing good support as to how you arrived at the deduction amount on your tax return, an audit will be intrusive and time consuming but nothing to fear.

If you are one of my tax clients, we have a worksheet for that home office deduction calculation. If you're not one of our tax clients check with whoever does your tax return and ask them to help you claim that deduction or explain why you do not qualify.

Perhaps with a little effort and rearranging your home working from home and not getting a deduction could be turned into working from home and getting a tax deduction for it.

The information in this and other articles is intended to be educational in nature only.  Not tax, legal or investment guidance for you specifically.  Each person’s situation is unique and you must seek appropriate professional guidance that can address your unique situation.

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