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What is a Home Office Expense?

Understanding the Fundamentals of Home Office Expenses

Home office expenses, as the name suggests, are costs associated with conducting a business or performing employment-related tasks from within the confines of your home. Due to the evolving landscape of work catalyzed by advances in technology, individuals have seen an increasing trend toward remote working. Consequently, understanding the implications of home office expenses and the possibility of deductions has become a focal point for many.

The premise of home office expenses revolves around the idea that the use of a portion of one's residence for business purposes is not without its costs. This area, whether it's an entire room, a garage, or any distinct space, is exclusively dedicated to business activities. Hence, the cost borne for maintaining this workspace is recognized as a home office expense.

Home Office Expense Deduction: A Closer Look

The Internal Revenue Service (IRS) in the United States acknowledges this business expense through what's known as the home office expense deduction. This deduction is an attempt to account for the loss of square footage in your home used for business purposes.

To qualify for this deduction, certain conditions must be met. The space must be used consistently and exclusively for business purposes. Additionally, it needs to be the primary location of your business, not merely a secondary workspace. Despite these provisions, many hesitate to claim this deduction, fearing complications or potential audits.

Nevertheless, it's important to note that both renters and homeowners can claim this deduction. The calculation of this deduction is contingent on the percentage of the home's square footage allocated for business purposes.

Home Office Expense: The Breadth and Scope

Home office expenses aren't confined to just the physical workspace. It expands to encompass other associated costs like additional phone lines, increased water usage, and other relevant utility expenses that arise due to business operations at home.

Impact of Tax Cuts and Jobs Act of 2017

However, claiming these deductions isn't a stagnant process. With the introduction of the Tax Cuts and Jobs Act of 2017, the rules around these deductions have been revised. Thus, when seeking information or calculating deductions, it's crucial to reference information published post-2018 to stay updated with the latest stipulations.

Home office expenses and their corresponding deductions serve as a valuable financial lever for individuals working from home. By understanding and correctly applying these provisions, one can potentially alleviate some of the financial burdens associated with maintaining a home office. For further details about the home office expense deduction, interested parties can visit the IRS website.

Summary:
IRS Link to Form — Found Here

The home office expense deduction allows people who work from home to take a tax deduction reflecting the loss of square footage in their home for the purpose of doing business there.

The space must be used exclusively for doing business on a regular basis and it must be the principal place of business, not just a place to work outside of the actual office. Many people fail to file for the home office expense deduction because they believe it will be more trouble than its worth or that it may even trigger an IRS audit of their reporting.

People work from home now more than any other time in history due to the capabilities afforded to them by technology today. It is now no longer necessary to go into a office building to get business done. It is still necessary to have a place to focus, to keep work-related items and materials, and to have a workspace.

This space of course reduces the amount of space that can be used for home-life, which is the primary reason for paying rent or mortgage payments — and, yes, the deduction is available to both renters and owners. The calculation involves figuring out the percentage of the home’s square-footage that is dedicated workspace.

It might be an entire room of the house or a garage, or some other arrangement. The person must spend at least half of their time at work working in the home office. Other work related expenses that have to do with the home, such as an extra phone line or water usage, can also be deducted.

More information about the deduction can be found here on the IRS website.
 

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Disclaimers and Limitations

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