If you own your own business and work from home, you could be eligible for some major tax breaks. The IRS gives significant deductions to people who operate a home office – that is, people who do a significant amount of work from their home. In the eyes of the IRS, this means that the part of your home dedicated to work-related activities (such as your computer room if you are a writer or kitchen if you sell cupcakes) can be treated as your primary place of business and count as a partial tax deduction.
Of course, the IRS also has strict rules governing how these deductions are handled and is often stringent in their enforcement. Here are a few tips to help make sure you get the most our of your potential home office deduction and avoid running afoul of federal tax laws:
Calculate Your Home Office Area: How much of a deduction from your mortgage or rental costs (along with utilities, rental fees and other costs) you can claim is determined by what percentage of your home is used for work. Provide an accurate assessment of how much space you use during work and avoid the temptation to exaggerate.
Keep Private and Personal Effects Separate: Your office spaces needs to be clearly defined as such, so you need to keep any private items away from it. Of course, you can decorate your office space with pictures or have items such as an MP3 player. But having items such as a baby crib or video game system that you would never have in a traditional office is a no-no.
Only Expenses for Your Office Space Are Deductible: This means that you can’t include expenses for the upkeep your your overall home in your deductions. Deductions relating to fixing your office space are acceptable; deductions for landscaping your front lawn or installing a new oven aren’t.