It seems like common sense: if you work from home then you can deduct your home office from your taxes. Yet, according to a recent news release from the Internal Revenue Services (IRS) this tax deduction is often overlooked by small business owners.
How do I deduct my business office?
The agency notes that there are two different options a small business owner can consider when attempting to determine if his or her office qualifies for a deduction. These options are:
- Regular method. In order to use this option the business owner must compute the business use of the home. This is done by “dividing the expenses of operating the home between personal and business use.” The IRS provides some guidance in Form 1040, Schedule C and Form 8829.
- Simplified method. Unfortunately, this term may be slightly misleading as dealings with the IRS are never truly “simplified.” However, compared to the regular method, the IRS does live up to the promise of reducing the amount of paperwork and record keeping that is required to benefit from this deduction. This option essentially allows for a deduction of $5 per square foot.
There are some exceptions and limitations to these deductions. It is also important to note that this is just one of many deductions a small business owner should take into account when completing a tax return. A failure to properly account for these deductions can result in an audit.
In the event of an audit, it is wise to take the notification seriously and contact an attorney. An experienced tax controversy and tax litigation attorney can review the details of the audit notice. Your lawyer will advocate for your rights during this process, better ensuring your interests are protected.