Tax deductions for your home based businessA Denver Accountant runs into problems all the time with owners of home-based businesses, who wonder if such-and-such an expense can be deducted, but not that one, and so forth. The problem is that many individuals and small business owners who work out of their homes erroneously assume – and hein and company haven’t figured out why – that any expense can be deducted on their income tax. The fact of the matter, and something that any denver cpa will tell you, is that the United States Internal Revenue Service has very specific laws at its disposal that regulate business expenses, and the penalties or legal action that can be taken against people who manipulate them.

When preparing to file your income tax return, you need to carefully consider all of your options for the following reasons:

  • There is some anecdotal evidence that claiming Office in Home deductions makes you a target for an IRS audit, but opinions on this matter are divided even among someone as qualified as a Denver Colorado Accountant.

  • There are specific requirements that you must meet in order to claim these deductions, as outlined by the IRS – so make sure you meet them to the letter.

  • Each deduction has limits, and there can be consequences if you claim some of these deductions, particularly regarding depreciation on your home if you decide to sell it later.

  • Any denver lawyer will tell you the best way to stay out of trouble is to only claim the Home Office deduction if you qualify. Further, you should only to claim the expenses you are entitled to, and keep track of your expenses in case the IRS asks questions about eligibility or the amount of expenses you’re trying to claim. If you have questions, contact a denver accountant. You also can contact the IRS for clarification, but make sure you have documentation handy, because they will ask questions.

Qualifying Office in Home deductions

A denver auditor can help you determine if you meet the requirements for Office in Home deductions, but assuming you do, exactly what are they? If you qualify, the IRS will allow you to deduct a percentage of:

  • Real estate property taxes on your primary residence.

  • Mortgage interest; just be careful to not claim it twice – once on Schedule A for Itemized Deductions and a second time as Office in Home deductions. Even the best software programs can make this mistake.

  • Rent payments in the event you are not the home owner.

  • Utilities (gas, electricity, etc).

  • Homeowners or Renter's insurance

  • Depreciation on your home, assuming you own the residence where the business is located.

  • Painting and repairs, or similar work that may be considered permanent improvements. These are added to the basis for your home to calculate depreciation and you can then recover these amounts if you claim deprecation through the Home Office deduction.

The final question is who qualifies? In many cases, self-employed individuals qualify and some telecommuters will, too. Two primary considerations for self-employed are: You must use that part of your home exclusively and regularly for business purposes and the business part of your home must be either the location where you meet with clients or customers in the normal course of running that business, or your principal place of business. For telecommuters, it’s a little trickier, but your home office must be for your employer’s convenience, and you can’t rent part of your home to your employer and use the rented space to perform work for that employer.