Tax Blog

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If your home office is your primary place of business, then you probably already know that home office expenses are deductible on your federal tax return. What you may not know is how to include these deductions and your taxes and accurately reflect all the expenses you incur because you work from home.
One of the first things you need to do if you are considering deducting home office expenses on your federal tax return is to determine how much of your home is used exclusively for conducting business. If you have a separate room that you use as a home office, and that really is not used for anything else, you may use either the square footage of that room or the number of rooms in your house to figure out what percentage of your home is used exclusively for your home business. Many people are confused by the exclusivity rule. If you use a portion of the family den as your home office, and also use it as a den, then it may not qualify for a deduction as a home office expense.

Once you have determined the percentage of your house that is used for your home business, you may also developed utility costs, and even home repair costs, which impact that office. For example, if you put a new roof on your entire house and your home office is one of five rooms in the house, you may be able to deduct as much as 20% of the cost of the new roof as a business expense. However, trying to deduct a portion of the cost of your kitchen when the only way it relates to your home business is that you eat lunch there, will likely get you a date with auditors.

Another major portion of your deductible home office expenses are the utilities used and Internet or phone service. Unless you have a dedicated phone line for your business, you may not deduct the entirety of that expense on your federal taxes. But using the same rule as before, you may be able to do that 20% of your electric, gas, Internet, and phone bills as legitimate home office expenses.

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