Setting Up A IRS Proof Home Office

[Remtastic]

Setting up your home office does not have to be a major chore, but there are rules you must follow to comply with current IRS requirements.

Stick with me and you'll be claiming a stress free home office deduction in no time.


1: Choose a permanent spot in your home to call your "office".

* It does not have to be a whole room, but clearly separate business and personal spaces within your chosen room.
* Make this room or space the main area where your business activities and/or management tasks take place.
* Only decorate your home office with items that would be proper for a corporate office (If you wouldn't display it in a real office, don't include it in your home office.)
* Your computer, desk, file cabinet, fax machine, copier and shipping area should all be part of your home office space. (You want anyone visiting you [i.e. an auditor] to clearly recognize that this is your place of business.)

Storing Inventory

* If you use parts of your attic, garage or basement as storage space for your inventory, you can add it to your home office space & take the deduction.

* You cannot deduct your entire attic, garage or basement if you use only a portion of that space to store inventory. The solution? Duct tape. Use it to set the boundaries of the "business" portion of your attic, garage, or basement so that if you are ever audited, the IRS agent can see clearly where your home office space ends and your personal space begins.

NOTE: Rarely will an auditor make a home visit. Photographs of your office should suffice.


2: Take measurements of your chosen home office space.

To take home office deductions, you should know the square footage of both your entire home (wall to wall) and your home office space.

I know this seems like a lot of work, but once it's done you'll sleep easy knowing the tax savings these steps will bring.


3: Calculate your home office percentage

Divide the square footage of your home office space by the square footage of your entire home (wall to wall).

So if your home office space is 500 square feet, and your entire home is 2,000 square feet, your "home office percentage" is 25%.

500 / 2000 = .25


4: Now the fun part : Start deducting

* You can deduct your home office percentage from most of your household expenses (such as mortgage interest, property taxes, utilities, homeowner insurance or rent).

* You may even deduct a new TV and DVD player if you purchase educational materials(movies) that are relevant to your business.

* A few other deductible treats include new computers, phones, phone lines(for business only), and office furniture.

* If you own your home, you can also depreciate the business portion for tax purposes.

* You cannot deduct expenses (such as lawn care, gardening & maintenance) for activities that take place outside of the home, since by definition a "home office" must be "within" your home.

Some Special Rules

* You cannot deduct more than the net profit your business makes each year. (But like other operating losses, you can carry these forward into future tax years.)

* You must fill out Form 8829 and submit it with your 1040 each year. (Your CPA, tax preparer or tax preparation software [also deductible]can help you do that.)

5: Keep good records

While the home office deductions are typically not an "audit trigger," you do have to keep good records, such as:

* Copies of Form 1098 showing the interest you paid on your mortgage each year
* Property tax bills (and canceled checks)
* Utility and insurance bills
* A copy of your lease (if you rent)
* Documentation for any other expenses you deduct
* Keep all records for a minimum of 5 years.

Refer to IRS Home Office Deduction and Publication 587 for further study. http://www.irs.gov/pub/irs-pdf/p587.pdf

[makingmoneyagain]

Let me take this one in another direction. I have a home office but I don't call it a home office. I setup a corp and I take my business deductions. This way, I send up no red flags.

Greg