Self-employed people essentially have two hurdles to clear to get their deductions. The first is straightforward: You must use the space regularly and exclusively for business. Regularly means often, rather than occasionally.
More important, exclusively means exclusively. You can have absolutely no personal use of it during the year (or at least none that you admit to). If you so much as use the desk in your office to balance your personal checkbook, all your deductions get flushed.
The second hurdle is much higher than the first, but there are four ways to get around it.
The first way is if your home office is your principal place of business, meaning you do most of the work that earns your keep there. This is no problem for people like freelance writers and accountants.
Your home office also qualifies as your principal place of business (meaning it’s deductible) if you use it for administrative and management activities – provided that you don’t use some other fixed location to do these chores. This rule saves the day for to independent salespeople, construction contractors, plumbers, veterinarians, computer consultants and the like, who make their dough out in the field but do their paperwork at home.
The third exemption applies if you use the office to meet with clients. Even if you do most of your work elsewhere, as long as you regularly use your home office for meetings, it’s deductible.
If you haven’t qualified yet, there’s still hope. If your office is in a building that is separate from your home, it qualifies. That means setting up your home office in a detached garage or outbuilding could get you a big tax break. Remember, in all of these scenerios, you must use your home office exclusively for business, and you must do so regularly.
What’s It Worth?
Let’s assume you pass all the tests. Now you want to add up your writeoffs. For sole proprietors, this is done on Form 8829 “Expenses for Business Use of Your Home”.
Photo by woodsy.
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