Home Office Tax Deduction: 4 Quick Questions to Ask

It's tax-time and many are finding ways to reduce their income tax calculation. 

Despite the recession, many people began businesses out of their homes. There also remain many people who continue to work out of their homes.

How does this translate over to your income-tax calculation? Well, many people have heard about the home office tax deduction. As mentioned in this blog last year, it can be a great deduction. 

But there's a huge caveat. Many tax professionals are doubtful about the home office tax deduction, claiming that it can essentially be a red-flag for audit. I've heard these claims myself this past year from prominent IRS attorneys and well respected tax law professors.  Yet, there are many who claim that the fear associated with the home office tax deduction is just myth. It's consistently heralded by financial writers as a great tax deduction.

But is it? Should you even take the home office tax deduction? 

Maybe. But it's not as easy as deducting your dining-table work-station as a "home office," even if it is where you do most of your work.  

Here are some things you need to consider about the home office tax deduction:

1. The space you deduct as your "home office" must be dedicated exclusively to work. Some IRS attorneys have stated that a spare bedroom that is used as an office but doubles as a guest room will not be able to benefit from the home office tax deduction.  Why? Because it's not exclusive to being a home office. Of course, there are exceptions to this rule, too (daycare facilities, for example). 
2. Primary place of business. You need to be performing relatively important business activities in the home office in order to take the deduction. The IRS will also look at the amount of time you spend working in the office to determine if it qualifies for the home office deduction. This area, again, is riddled with nuances and exceptions. A doctor, for example, who meets patients in her clinic but does her administrative work from a home office might be entitled to the home office deduction, even though it would seem on first glance that her primary place of business is her clinic.
3. The work must be related to your "trade or business."  If you are a restaurant owner by profession but you use your home office to work on your online brokerage account, the use of your home office might raise some questions. After all, your trade or business is in the food industry.  
4. Regular use. The home office can't be a sporadic office, where you work once in a blue moon. You have to use it regularly in order to deduct it. 

These are only a few points to ponder on the home office deduction.  There are many resources and readings available on this topic. Be sure to research before you take the deduction.

Related Resources

• The Home Office Deduction (irs.gov)
• 8 Useful Tax Deductions for Small Businesses (FindLaw's Free Enterprise)
• Tax Court Case: Doctor's Home Office Deduction  (FindLaw Cases)
• How can I qualify for a tax deduction on a home office? (ABA Family Legal Guide)
• The Home Office Tax Deduction (FindLaw Small Business Center)
• Articles on Tax Law (provided by Weisberg and Kainen)