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By Ernest Johnson
Even as it is every home based business owner’s dream come true, deducting your home office may not always be a wise choice or even a legal one. The Internal Revenue Service has put in place a plethora of very strict guidelines that determine which entrepreneurs will have the option of taking that coveted deduction and who is not eligible to do so. You need to be fully aware of the guidelines or you could end up finding yourself in trouble with the IRS.
Generally speaking, you may write off the use of your home office if you conduct your business activities on a regular basis at that location. If you work at other places as well, the deduction may not apply to you. This might be of special note for freelance writers and others who do business with little more than a laptop and who find that they can do their work at the park or coffee shop as well as they can do it at the desk in the spare bedroom.
In addition, you must use that space you are trying to deduct entirely for your home business. Thus, the desk you shoved into the corner of your living room or kitchen will not permit you to write off the living room or kitchen as a home office, since the rooms are actually serving other purposes as well. Home business entrepreneurs who are running daycare operations from their homes are obviously exempt from this exclusive use clause; all others must abide by it.
If you find that you meet all of the requirements imposed by the federal government, you will be permitted to deduct a number of expenses that will severely lessen your tax liability:
Deduct the applicable portion of taxes you pay on your property.
Write off a portion of the mortgage interest you pay or the rent you pay to your landlord.
Utilities that are used within your home office, insurance such as homeowners, fire, flood, or earthquake insurance, and common maintenance expenses are all deductible items.
As you are calculating the applicable deduction, make sure you use only the percentage that is equivalent to the actual size of the room you utilize. You will not be able to write off your entire second story if you only use one room of it for your business! In the same way, it is wise to consult with a tax professional if you are trying to sell the IRS on your notion of using an actual suite of rooms within your home for the sake of your freelance writing business. In case of an audit, it is incumbent upon you to prove to the government’s satisfaction that each and every square inch of space you are writing off is actually used for the business itself and not in some way sitting idle.
Consult with your tax professional also prior to expensing any home improvements or remodeling! You may be in for a surprise to learn that some renovations will not in fact be permitted as a write off for the sake of a qualified home office deduction.
About the Author: Ernest Johnson is the owner of The Rich Head, L.L.C. To find the best home based business ideas and opportunities so you can work at home visit:
TheRichHead.com
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