Are you using a home office and worried that claiming it will trigger an IRS audit?

Many small business owners or employees who work from home, are afraid to claim “home office” deductions for fear it will bring the auditor a-callin’. Fear of an IRS audit should never keep you from claiming legitimate deductions. Just make sure you keep well-organized records, and that you can prove your deductions are indeed for business expenses and you’ll be fine. Here are some pointers when it comes to home offices:

  • Make sure that your office is distinct from your living area. Whether it is a room of its own or a part of a larger space, there should be a clear line between your workspace and the rest of the home. Don’t use your office as a spare bedroom or a playroom for the kids. If you are claiming the space as a home office, it needs to be an actual home office.
  • If you only have one computer, claiming it as the office computer will be difficult. An auditor will not believe that it is not utilized for personal use as well. The burden of proof will be up to you. You can dedicate a computer solely to work, or omit the computer area from your office space.
  • Calculating the percentage of home expenses that is deductible for your business is simple. Measure your work area and divide by the square footage of your home. That percentage is the fraction of rent, mortgage, utilities, taxes, and maintenance you can claim. You should be able to give you tax preparer square footage and your yearly expenses and have them calculate your deduction.
  • You can opt to take a standard rate for the square footage vs. actual expenses. Talk with you accountant to find out which scenario is more beneficial for your tax return.

Keep in mind is that if it’s a legitimate expense, an IRS audit will be no big deal.

For the self-employed, this deduction will help allow you to offset your self-employment income. As an employee, these expenses will be subject to a 2% floor and you will need to itemize to utilize the deduction!