If You Use Your House for a Home Business, It Could Be Tax Deductible

A Home Business Article Contributed by Donna M. Brown

Take Advantage of Home Use Tax Breaks for Your Home Business

There are many tax deductions available for people who work out of their homes whether you own a home business or are an employee. Guidelines set for by the Internal Revenue Service can be found at .

Plan use of space in your home to meet the IRS guidelines and you are much more likely to fair well at tax time!

To Get a Home Use Deduction for Your Home Business Pay Careful Attention to the Rules

Any certified public accountant can advise you about how to make the best business use of your home for tax purposes, but it will help if you read the rules and regulations prior to a consultation with your accountant so you can answer questions and offer your own solutions intelligently.

To deduct business-use-of-the-home expenses for your home business, according to the IRS, part of your home must be used "regularly and exclusively as one of the following:

" As the principal place of business for your trade or business;

" As the place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or

" In connection with your trade or business, if you use a separate structure that is not attached to your home.

In order to claim the space you use in your home as a business deduction, you must pass what the IRS calls the "principal-place-of-business" test. The IRS will take certain information into consideration, so you need to take them into consideration in the very early planning stages of your home business.

The IRS will look at where most of your home business activities are performed and how much of your time is spent in the home area performing those important home business tasks.

The following regulations, published by the IRS, apply to use of your home office as your principal place of business. If you want to take advantage of tax deductions, make sure:

" You use it exclusively and regularly for administrative or management activities of your trade or business; and

" You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

Set Specific Space Aside to Operate Your Home Business

An exclusive-use rule requires that you keep personal and business activities separate at home. For example, you can't claim your family room as exclusive-use office space unless you clear out personal items and use that room for business only. Qualified daycare providers are an exception to this rule. A loop hole might also exist if you use part of your personal space to store inventory for your home business or samples labeled for business use.

Are You the Owner of a Home Business or an Employee Working at Home?

More and more large companies are recognizing the advantages of allowing their employees to work at home part-time or all of the time.

"If you are an employee, additional rules apply, " according to the IRS, Even if you meet the exclusive and regular use tests, you cannot take any deductions for the business use of your home unless:

" the business use of your home is for the convenience of your employer; and

" you do not rent any part of your home to your employer and use the rented part to perform services as an employee.

Research All of the Deductions Available to Your Home Business

In addition to space designated for business use in your home, you might be able to deduct the business portion of real estate taxes, deductible mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs.

Contact your accountant or a representative of the IRS to determine which expenses are allowable and how to determine what percentage of your home qualifies. Read information available at IRS.gov as you plan your home business strategy to make sure you meet tax requirements in order to realize significant tax savings.