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Home-Based Business Tax Deductions:
Don't Throw Away Those Home Expense Receipts
By Stephen Windhaus
Operating a home-based business gives greater independence and flexibility in work hours. It cuts down on overhead expenses. But, for most, it isn't a shortcut to wealth. Last year I learned for the first time that all home-based business owners need to pay close attention to the IRS code regarding a significant savings to be had by taking a lot of qualified deductions that did not exist in the past, or the interpretation of past deductions has been broadened to give you more of those deductions.
To begin, you want to access the IRS web site and search for Publication 587, 'Business Use of Your Home'. It's 27 pages in length, and that can be a lot of printer ink, but it is a tax-deductible operating expense. The document is in PDF format, which simply means you need to have Adobe Acrobat Reader. Print out all 27 pages. Read the guide and begin developing your strategy for record keeping, organizing and filing those receipts. While you're there print out a copy of Form 8829. It is the primary form associated with home office deductions.
Remember, tax forms change from year to year. Be sure you have the latest forms before you file.
The first step in determining the amount of each qualified deduction is to calculate the percentage of the total home occupied by your office. The IRS offers two formulas:
- Square footage of office space divided by total square footage of home.
200 / 2,000 = .10 or 10%
In this example 200 square feet of office space divided by 2,000 square feet of total home space equals 10%.
- 1 office space divided by the total number of rooms in the home.
1 / 10 = .10 or 10%
In this example 1 room for office space divided by 10 total rooms in the home equals 10%. You cannot use this formula unless all rooms are approximately the same size in square footage.
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