Deductions for Work at Home

A Home Business Article Contributed by Sarah White

Deductions for Work at Home

One of the perks of doing work at home is the possibility of deducting a portion of your regular home expenses from your taxes. Like most decisions when it comes to starting your own business, though, taking this deduction is not without its pros and cons.

What is the Work at Home Deduction?

If you work at home and do a substantial amount of work from your home office which you cannot do anywhere else, you likely are eligible to deduct a portion of your rent or mortgage payment as well as payment for utilities such as electricity and heating for the portion of your home that is your office.

The key to this deduction is that you have to actually perform the work at home, so if you are a personal trainer, for instance, who works with clients at the gym or at their home, you might not be able to claim this deduction. But if you make a product and sell it on the Internet and all the work is done from your home office, you should be able to deduct expenses based on the square footage of your office as a percentage of the home.

This is easy to figure if you have a blueprint of your home or know the square footage, just divide the size of the room by the size of the home to find the percentage of the home the room takes up. Always consult with a tax accountant before taking a new deduction to ensure you have completed all the necessary paperwork.

Why Would You Not Take a Work at Home Deduction?

The other main catch to taking a tax deduction for work at home is that the room you call your office (as well as all equipment used for your business) must be used exclusively for the business. That means your kids can't use your computer and you shouldn't even pay your non-business bills while sitting at that desk in your home office. So if you don't have room or can't afford separate equipment for work purposes and home purposes, this deduction might not be for you.

Also, taking this kind of deduction can cause you to be flagged for an audit, even if you haven't done anything wrong, so if that's something you'd rather avoid you should consider not taking the deduction. Again, talk to your accountant about the pros and cons before making a decision.

The Bottom Line of Work at Home Deductions

It is an individual decision as to whether you should take any deductions for your home office on your taxes. While it may seem like a no-brainer, that everyone likes to save money on their taxes, it is more complicated than that. Another issue can be when you sell your home if you have taken a deduction for the business you may have to factor in depreciation of your business and lower the asking price for your home.

Taxes, like many other issues involved in starting a work at home business, are very complicated and you should always consult a professional before making any changes to your financial plans.