If you work at home or own your own business, you may be able to deduct part or all of your home office expenses from your taxes. Depending on your situation, this could add up to significant tax savings. It's important to take these business deductions carefully, however. The IRS has strict rules about what constitutes acceptable home office expenses.
Instructions
1. Create a dedicated home office in your home. This space cannot be used to serve any other purpose or it is disqualified as a deductible home office.
2. Measure the square footage of your home office and determine the percentage of the total square footage of your home the office occupies. This figure is essential in calculating how much of your indirect expenses, such as mortgage/rent payments and utility bills, you can deduct.
3. Hold onto all receipts and canceled checks for home office expenses throughout the year. Such expenses may include office supplies, office furniture and computer equipment, for example.
4. Record expenses in a ledger, spreadsheet or bookkeeping software program throughout the year. This will make it easier to do your taxes at tax time, because all of the information you need will be in one place.
5. Prepare your Schedule C tax form "Profit or Loss From Business" according to IRS instructions (see Resources below).
6. Fill in expenses as appropriate using form 8829 "Expenses for Business Use of Your Home" from the IRS.
7. Hold onto your tax returns and all of your supporting documentation, including your ledgers and receipts, for at least three years. These documents will be needed to support your claim should the IRS choose to audit you.
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