Small business owners and independent contractors are always interested in finding every possible deduction when it comes to filing taxes. There are some deductions that are fairly common and well known to those working for themselves. However, others are less-known and often overlooked. This results in the business owner paying more than they need to.
Among the overlooked tax deductions available to those who work as independent contractors are home office deductions. Most of us are aware that there are tax deductions eligible for those who work from home. We may not all be aware of exactly how they work.
What Counts as a Home Office?
According to the IRS, a home office is a room or defining area of your home that you use exclusively and on a regular basis for business. Additionally, you may use ot for one of these reasons:
- Serves as your principal place of business
- Where you see your clients, customers, or patients
The “exclusively” part of the definition often throws people off when they file for a tax deduction. To clarify, if you work in a room that is also your TV room, for example, that you use when you are not working, it may not count as an exclusive area for business. On the other hand, if you use the same TV room to work in and store products in, it can count as deductible.
Working on the Road?
Let’s say you work from home. You have a home office. But, you spend more of your time on the road visiting potential clients or working with existing customers. Your home office can still be tax deductible, as long as it is essential to your business and you spend a substantial amount of time there. For example, if you are on the road selling products much of the workweek, but return to your home office on a regular basis to file paperwork and billing, it should qualify for the deduction.
Your Convenience vs. Your Employer’s Convenience
One gray area that sometimes throws people off when it comes to home offices is whether you use it because it is more convenient for you or for your employer. Let’s say you have an office or available workspace at the company’s office. But, you choose to complete reports or other projects at home in the evenings or over the weekend. This is more for your convenience and would not count for deduction.
If your employer, on the other hand, has set up the business so that everyone works remotely without a company headquarters, then you can qualify for the home office tax break.
We know that many people have specific situations that may not be so cut and dry when it comes to claiming tax deductions. If you have questions or concerns about what or how to file, please don’t hesitate to give Hacker Accounting a call at 602-375-5251.