Work From Home

There are two basic hurdles for the self employed people to get their deductionsThe first one is quite simple, that is that the space must be used exclusively for the purposes of business and also it should be regularly used for business. The space needs to be for exclusive business use and if there is anything else do not admit it or all the deductions are to be bid a goodbye.

The next block is slightly more complicated but there are ways around it.

The first way is if you keep your office space as your principal place for conduction business. It also is deductible if used for management or administrative activities. So the paperwork has to be done at home.

There is an exemption if you utilize the space to meet with the clients related to your business. As long as the space is used even just for the meetings, it is deductible.

Another way to get around it is to make your office detached from home, even if it is the garage at the bottom of the driveway, it is then given deductions on tax, but this office has to be regularly used.

To add up your write offs for the sole proprietors, is the form 8829 (Expenses for Business Use of Your Home). The rules of which are as follows:-

There is a 100% deduction on the expenses that are directly related to the office space including the painting and the maintenance including telephone lines and utilities.

A percentage of the indirect expenses like mortgage interest, property tax, rent etc are also allowed to be deducted.

The only limitation on these deductions is that the business cannot be shown to be in the red. The amounts that are below the break even points are carried over to the next year and it doesn’t affect the deductibility of the property taxes and mortgage interest.

Filed under: Tax Information