Click below to watch our NEW video about Home Office Tax Deductions!
Do you run your business from a home office? If so, this video is for you!
Home Office Tax Deductions
In this video, we discuss tax deductions for home offices. First, we explain what qualifies as a home office (for the purpose of the deduction) and the specific rules that apply here. We also share information about the two methods of calculating this deduction and which one might be best for you and your business. Finally, we dive into the types of entities that can claim this deduction when it is time to file taxes.
IRS Audits and the Home Office
Keep in mind that home office deductions are perfectly legitimate business expenses and may be deducted with confidence on tax returns. Nevertheless, they are on the IRS radar as a potential area of abuse. So, be sure that you meet all the rules. For example, a home office must be a place where you routinely meet clients. Alternatively, it must be your primary place of business. In addition, the office space must be solely for business. However, there is an exception for elder care and day care centers, where mixed use facilities are allowed.
Lastly, be careful that the size of your home office, expressed as a percentage of your entire home, is correctly reported on your tax return. IRS auditors have been known to visit home offices with a tape measure. So be exact.
Business that are formed as an S corporation, or an LLC with an S corporation election, may create an accountable plan to reimburse the owner-employee for home office expenses. This is a great method to ensure that the owner, who is also an employee of the S corporation, gets the tax deductions for the home office. These expenses will be passed through to the owner from the entity via their K-1. Without the accountable plan, the home office would be deemed to be the personal expenses of the owner-employee and would not be deductible, especially after the elimination of itemized miscellaneous deductions on Schedule A of Form 1040.
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Founded by Gary Massey, Massey and Company is a boutique CPA firm in located in Atlanta, Georgia. We are dedicated serving the needs of small businesses and their owners.