The Home Office

The first question asked by man was, “am I my brother’s keeper”. Humankind’s second question is a more simple and direct question. How can I save money on my taxes? Welcome to the home office deduction.

The home office deduction is an excellent strategy. The major benefit is the conversion of nondeductible personal expenses to deductible business expenses. Your mortgage interest, utilities and some direct expenses are deductible. You can also deduct depreciation on your home. All deductions are based on the percentage of your home that is used by you for your business.

As a sole proprietor business owner, the deduction lowers your taxes by your marginal tax rate. But even more significant is the reduction of the self-employment tax, which is a whopping 15.3% of your net income. The deduction flows from Form 8829 to the expenses section of your Schedule C.

But be aware of the potential pitfalls. The major negative is that when you sell your home, you are subject to the recapture of any depreciation allowed or allowable. This portion of the deduction gets taxed at your tax rate in the year you sell.

If you are an employee that works at home, don’t feel left out. You might also be eligible for the deduction. Is your work at home for the convenience of your employer? If it is, you are also eligible. Be sure to obtain a written statement from your employer to confirm the needed for you to work at home.

Is the home office deduction beneficial to your situation? See your accountant for the details.

Ira Einhorn is a Certified Public Accountant and the Chief Financial Officer for Solano Magazine.

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The Home Office