Home Office Tax Deduction Myths
Myth #1: A Home Office Has to Be an Entire Room
Wrong. A home office can actually be part of a room. This means that you could setup a home office in your kitchen or in part of your living room. There are however some rules you must follow, which will be discussed below.
Myth #2: You Can Use Your Home Office as You Please
Again, this is wrong. A home office can only be used to complete work tasks. This means you shouldn't be using the space to fold laundry or using it as a storage room and deducting it from your taxes. You need to use your office on a continuous basis and make sure what goes on in your office space is work related.
Myth #3: You Can Deduct All Your Household Bills
While you can deduct some of your bills, you can by no means deduct all of them. The bills you deduct due to your home office must be related directly to your office and you can only deduct a certain percentage of that bill. For example, if your home office takes up one room in a ten room home, you may deduct 10% of the bills that are related to your office. This means you could deduct 10% of your electricity bill, heating bill, mortgage and other bills associated with your home office. There is however an exception and that is bills, or parts of bills, that are strictly for your home office.
Myth #4: You Can Deduct Your Entire Phone, Cellphone and Internet Bills
In order to take a deduction off your taxes for a phone line, it must be strictly used for your home office. This means that in order to deduct phone expenses, you need to have a separate phone line for your home office. The same goes for your cellphone. When it comes to internet bills, it gets really tricky. In order to deduct part of your internet expenses, you must keep records on your internet usage. This means that you need to write down when you use the internet, and what it was used for, anytime you access the internet. Then you can take the percentage of internet use that was for work use and deduct that portion of your bill from your taxes.
Myth #5: Deducting Home Office Expenses Can Save You a Ton of Money
Unless your bills are huge, a home office really isn't going to save you a ton of money. Many people are under the misconception that if they owe the IRS $900 and the expenses for their home office are $900 it evens out. Home office deductions come off your total income. For example, instead of the IRS basing your taxes on $23,900, they would base the taxes on $23,000.
Sources:
http://www.irs.gov/businesses/small/article/0,,id=204169,00.html
http://www.irs.gov/publications/p587/ar02.html#en_US_publink1000226331
Published by Amy Brantley - Featured Contributor in Lifestyle
A passionate writer who specializes in food-related content and has hopes of changing the way people think about cooking. Has published over a thousand pieces of food-related content. Amy is available for wr... View profile
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- A home office must be used solely for work and used regularly.
- You can only deduct a certain percentage of certain bills.
- A home office will not save you thousands of dollars, unless your expenses are very high.
11 Comments
Post a CommentVery helpful! Thanks so much!
I think one reason there are so many myths about home office deductions (and probably other tax deductions) is because the IRS keeps changing the rules. A few years back, the IRS said you had to have a complete room for a work office. Then they changed that. (Before that rule came about, you could set up your desk anywhere and still take a deduction.) At one time they said you could do other things in your home office but had to deduct that time from your claimed amount. If we use your ten room house example to calculate it and you used your office 75% of the time working and 25% of the time folding clothes, then you could claim 75% of your 10% (or 7.5%) related household bills. It's no wonder there are so many myths about any tax deductions. At one time they may not have been a myth! Good article, Amy.
Excellent home office tax deductions info!! :-)
Thanks for the good tips.
Thanks for that helpful advice.
Such important info ~ well done my friend!
good work on this, Amy, thanks!
Thanks for clearing these up!
Great job. That was always one of the toughest things to get my small business clients to understand.
Thanks for debunking these myths, Amy. My home office isn't used just for work purposes, so I don't deduct expenses.
Sophie