Home Office Tax Deduction

A home office tax deduction quickly comes to mind when starting your business from home. Likely you want to save the money for the office expenses and associated commute.

These are probably your first thoughts, cutting expenses where ever possible, until your start-up becomes profitable. While this occurs to be a good initial solution there are a few things you have to know in order to qualify for the home office tax deduction

1. Your place of business has to be registered at your home address

2. Your home office is a separate room which is solely used for your business, it needs to be clearly identified as an office.

3. The exact square footage of your home office needs to be measured and disclosed.

Only under the above circumstances are you allowed to claim your tax deduction for your home office, but it probably comes to a bit of a surprise that you wont save a lot of money.

Lets assume you have a house which has a total living area of 2000 sqft, your mortgage interest payment and related cost for utilities is $1500 per month. Your allocated home office is 120 sqft, so your tax deduction for the home office is $90 per month. The annual total amount cant be used against any business losses, but must be carried over.

In many cases the home office tax deduction only comes out to a few dollars. Remember you can only claim the cost associated with the exact size of your home office.

Having a virtual office or an executive office suite on the other hand is a business expense that can be deducted in full. The cost are very marginal, at the same time you have a more professional office appearance with administrative staff on site, representing your company.

Even if you do not really need an office all the time, having a real commercial business address has its benefits. Many banks require you to have a real business address and do not accept the home address as the primary place of business. This is particularly applicable if you have incorporated your company.

If you chose a business center as your main address for your company, do not claim your home office tax deduction, the IRS likes to check on the home office status quite often.