Taking Home Based Business Tax Deductions - information from Brookwood Tax Service

This page last updated on
August 28, 2004

Take Home Based Business Tax Deductions
If You Work in Your Home, Some of Your Expenses May be Tax Deductible

If you are self-employed and you use a portion of your home for business, you may be able to deduct some associated costs.

In order to qualify for the home based business tax deduction, the area used for your business must be used regularly and exclusively for your business needs. You can’t set up a computer in your den, input invoices sporadically, and then claim that room as your home office.

The business part of your home must be either your principal place of business or where you meet or deal with patients, clients, or customers in the normal course of your business. A separate, detached structure such as a garage or guesthouse that you use for business also may qualify as a home office and allow you to take the home based business tax deductions.

If your home office is used exclusively and regularly for the administrative or management activities of your home based business, it qualifies for the business use of the home tax deduction. Billing operations, keeping your books and records, ordering supplies, or setting up appointments qualify as administrative duties.

If you meet all the requirements to claim a home office, some of the expenses you can deduct include a portion of your real estate taxes, deductible mortgage interest, rent, utilities, insurance, depreciation, painting, and repairs.

The total amount of the tax deduction depends on the percentage of your home used for business. To calculate the percentage used for your home based business, divide the area of the business use portion of the home (in square feet) by the total area of the home.

Keep in mind, your deduction will be limited if the income from your home based business is less than all your business expenses. In other words, if your home based business earned no net profit last year before calculating the potential tax deduction for business use of the home, you will not be allowed to take any tax deduction for home expenses for that year. The expenses will be suspended and carried forward to future tax years.

Home Based Business Tax Deduction

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Take Home Based Business Tax Deductions If You Work in Your Home, Some of Your Expenses May be Tax Deductible

Home Based Business Tax Deduction

Take Home Based Business Tax Deductions
If You Work in Your Home, Some of Your Expenses May be Tax Deductible