An office with a view – right down the hall and to the right. Only the hallway may be in your home. With changes in technology, cloud computing and the ability to work virtually, our workforce and workplaces are changing. Home offices are becoming a standard practice in both corporate America, boutique consulting firms and with entrepreneurs.
So you’ve identified a space for a home office, but does it really qualify as a home office complete with the deductible business expenses? Click here
to watch the video on how the IRS has created a simplified home office deduction and determine if your office passes these tests:
Trade or business use test.
Often a business will start as a side business or hobby but mature into something much more. To qualify for business use of your home you must use part of your home for a qualified trade or business.
Exclusive use test.
Is your office used exclusively for business activity, or are you blending the space with activity for personal use? A home office must be used exclusively for your business activity, however, there does not need to be a permanent barrier between this space and the rest of the house.
Regular use test.
Do you use this space regularly for qualified business activity? Utilizing this space once every few months probably isn’t considered regular use.
Principal place of business test.
To deduct your home office expenses, the home location must also be your principal place of business. You may have multiple business activities, and more than one location for said activity, but the home office must be your primary location.
Why bother? Sound confusing? Perhaps. But with the recent introduction of a simplified home office deduction calculationmore small businesses will have the opportunity to reduce their tax bill and still deduct expenses such as advertising, payroll and office supplies. For questions to these and other tax related issues, contact us at 724-359-5022.