Home Office Deductions

Putting an administrative office in your home has multiple benefits. This home office will need to be your primary office for managerial and administrative functions. By having this additional business location, it will eliminate the commute you could not deduct before. According to the IRS, “If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business.” This allows you to have more than one business location for the same business or trade. For many small business owners, this means that your home office could also be a deduction for your taxes.

Of course, you have to make sure you meet the IRS’s home office qualifications. The IRS states “Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements: 1) You use it exclusively and regularly for administrative or management activities of your trade or business 2) you have no other fixed location where you conduct substantial administrative or management activities of your trade or business”

What do these two quotes from the IRS mean to you? You can deduct the expenses to and from your home office to another work location.

What are administrative and management duties to the IRS for your home office location. The IRS state the following: “There are many activities that are administrative or managerial in nature. The following are a few examples:

-Billing customers, clients, or patients

-Keeping books and records

-Ordering supplies

-Setting appointments

-Forwarding orders or writing reports”

The IRS gives you some flexibility with this rule too. If you are able to do the administrative and managerial duties at another location, but you simply decide to read the mail, pay bills, order supplies, and write reports at your home office then you can still claim it as an additional location. Just remember that the substantial amount of time of the managerial and admin duties need to be done out of this home office. If you occasionally do them at another location, then that is fine as long as it is occasional.

Your secondary location then becomes your primary location for meeting with clients, providing a service to customers, or a sales office. A good example would be a realtor. The broker might offer you space at the real estate broker’s office, but you schedule appointments, pay bills, receive mail, preparing for showings, post listings, and the other numerous admin and management duties of a realtor. You now have a home office space that you can deduct.

How to figure out your deduction for your home office. To make the math easy, you have a dedicated room that is used exclusively for the business. This room is 10 x 10 feet and your overall house is 1,000 sqft. This mean that 10% of your home is used exclusively for your home office.

-Mortgage interest: $1200/yr x 10%: $120

-Property taxes: $2,000/yr x 10%: $200

-Utilities: $1,400/yr x 10%: $140

-Office furniture: 100%

-Office repairs: 100%

- I think you get the point here. 10% of your home office become a deduction.

Another big deduction becomes the mileage deduction for driving to the other business locations. Just be sure to keep a written log, or use an app on your phone, to keep track of all of your miles. Here are the posted mileage rates from the IRS.

You need a place to live and work, so now you know how to add the extra expenses of having a home office and a 2nd location. Enjoy the tax deduction.

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Need us to review or assist you with your tax return for your home office, Contact Us to assist you.