Business Use of the Home – Part 1 – Introduction
Wouldn’t it be nice to write off some of your personal expenses, such as utilities, home repairs, or even lawn care? It would be even better if these expenses could be written off against income taxes and self-employment taxes. Under normal circumstances, these types of personal expenses are explicitly categorized as non-deductible in the tax code. However, if you work at home, or even store things for your business there, you may be able to claim a tax deduction for some of these ‘non-deductible’ expenses.
You may have heard of this deduction as the Home Office deduction. A more accurate name, however, is the Business Use of the Home deduction. As the name indicates, there are many more opportunities to use this deduction than by simply having an office in your home. You may also qualify for this deduction if you store inventory, have a greenhouse or workshop on your property, have a lab or studio, or run a daycare. Don’t limit your possibilities for this deduction by thinking you have to have a home office. Any use of your home or property for your business may qualify for the deduction.
Example: Mike is an elementary school teacher. He also has a side business making wooden toys that he sells at craft fairs. Mike converted an old shed on his property into a workshop that he uses exclusively for his business several nights a week. Mike is able to deduct a portion of his rent and utilities, and the cost of the improvements on the shed (through depreciation), which saves him about $1,500 per year in income and self-employment taxes.
While this deduction presents a great opportunity to save money on your taxes, it is important to know from the beginning that determining the Business Use of the Home deduction is a fairly complicated, multi-layered process. So if you think this deduction may apply to you, be sure to read Part 2, Part 3 and Part 4 of this series in order to understand the deduction and take advantage of its tax savings.