Now that you know how to save money on your taxes by deducting job-hunting expenses, let’s talk home businesses. According to the IRS, you may be able to save big bucks by writing off expenses related to what Uncle Sam refers to as the “business use of your home.”
If you work out of your home–regardless of whether you rent or own–you may qualify for the deduction. The IRS defines a “home” as a house, condo, apartment, and mobile home, basically, any place that includes an area where you cook and sleep. A home office can be as large as your garage, a separate studio or workshop, or as small as a guest room or corner of your living room.
The rules are fairly strict and the technical requirements rather lengthy, but basically, if you follow the parameters detailed in the tax law, you can legally deduct expenses you spend to run a business from your home, including:
*Rent
*Insurance
*Utilities
*Real estate taxes
*Mortgage interest
Before you get too excited, in order to qualify for the deduction you must meet two vital requirements:
Regular and exclusive use: This means that you must regularly use part of your home exclusively for a trade or business. In other words, you must use the space at least a few times per week and not just once or twice a year or when you can’t make it into the office your company provides for you in the city.
Principal place of business: The IRS mandates that you use your workspace for business purposes only. Meaning, if you use a spare bedroom to house overnight guests, but you occasionally pop in there to write up reports for work, you don’t qualify for the deduction. Likewise, you wouldn’t qualify if you worked off a laptop perched on a table in your basement, and that same table and space were used to host your Wednesday night poker games. Why? According to the IRS, you can’t claim business deductions on a space that is used for both business and pleasure.
There are some caveats to this requirement, which I will delve into in my next post.