Every year at this time there are thousands of new home-based business opportunity owners who sit down to file their final income taxes and wrestle with the idea of whether or not to take the home office deduction. If you’re one of them, then you need to know the general rules for 2012 (tax year 2011) when it comes to this issue, and here they are:
• The part of your home that you claim for business use must be used for business purposes exclusively and regularly. The IRS takes a very firm stand on this requirement, so you need to be absolutely clear on what those parameters mean.
• The area you designate and that is blocked off as your home office must be the primary location that anchors you as you carry out your business activities, even if those activities don’t take place directly on the premises at all times, or it must be a place where you routinely meet with customers and clients.
• Day care- and storage-related businesses and/or business activities are or may be exempt from the aforementioned requirement. Know what this entails.
• Your deduction is based on the percentage of square feet in your home that is allocated to your business. Be sure you make a defensible and accurate calculation in this regard.
• Various other deductions related to operating out of a home office and that have to do with such issues as direct and indirect expenses, interest and property taxes, and rent and depreciation may also be of interest to you and could save you even more money, so you need to look into them as well.
• The amount you can deduct from your final tax bill when it comes to the home office deduction does have its limits. The bottom line on this front is that what you deduct for your home office can’t exceed what you make.
And finally, according to the vast majority of tax professionals, any concerns you might have that by claiming a home office deduction you may be triggering an IRS audit are unfounded. Given that assurance, if you’ve done your homework and you're entitled to take the deduction, don’t hesitate to do so. It could very well save you hundreds if not thousands of dollars, and you’ve earned it!
For an in-depth overview of what you can and can’t deduct in the way of a home office, go to http://www.irs.gov/pub/irs-pdf/p587.pdf now!