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Follow these easy steps to set up a home office that complies with IRS requirements. Then, claim your home office deduction with peace of mind.
NOTE: Rarely will an auditor make a home visit. Photographs of your office should suffice.
To take the home office deduction, you should know the square footage of both your entire home (wall to wall) and your home office space.
Percentage of your home method:
Calculate your home office percentage. This is a fraction—the numerator (top number) is the square footage of your home office space, while the denominator (bottom number) is the square footage of your entire home (wall to wall).
So if your home office space is 1,000 square feet, and your entire home is 4,000 square feet, your "home office percentage" is one fourth, or 25 percent.
Simplified square footage method:
Beginning with 2013 tax returns, the IRS began a simplified option for claiming the deduction. This new method uses a prescribed rate multiplied the allowable square footage used in the home. For 2016 the prescribed rate is $5 per square foot with a maximum of 300 square feet. The space must still be dedicated to the business activity as described above.
With the simplified method, if the office measures 150 square feet, for example, then the deduction would be $750 (150 x $5).
NOTE: With either method the qualification for the home office deduction is made each year. So you might qualify one year and not the next, or vice versa.
While the home office deduction is typically not an "audit trigger," you do have to keep good records, such as:
Follow these easy steps to set up a home office that complies with IRS requirements. Then, claim your home office deduction with peace of mind.
NOTE: Rarely will an auditor make a home visit. Photographs of your office should suffice.
To take the home office deduction, you should know the square footage of both your entire home (wall to wall) and your home office space.
Percentage of your home method:
Calculate your home office percentage. This is a fraction—the numerator (top number) is the square footage of your home office space, while the denominator (bottom number) is the square footage of your entire home (wall to wall).
So if your home office space is 1,000 square feet, and your entire home is 4,000 square feet, your "home office percentage" is one fourth, or 25 percent.
Simplified square footage method:
Beginning with 2013 tax returns, the IRS began a simplified option for claiming the deduction. This new method uses a prescribed rate multiplied the allowable square footage used in the home. For 2016 the prescribed rate is $5 per square foot with a maximum of 300 square feet. The space must still be dedicated to the business activity as described above.
With the simplified method, if the office measures 150 square feet, for example, then the deduction would be $750 (150 x $5).
NOTE: With either method the qualification for the home office deduction is made each year. So you might qualify one year and not the next, or vice versa.
While the home office deduction is typically not an "audit trigger," you do have to keep good records, such as:
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