Home office tax deduction
Home office tax deduction makes it possible for you to decrease your taxes by managing your home as your workplace. By the using of your house for a business, it makes possible to help cover part of household costs such as utility bills, rent, insurance, depreciation, interest, real estate tax, home repairs, and improvements.
You need to fulfill some basic requirements to make the grade for such a deduction. The biggest thing is use a specific area of your house exclusively for conducting the business. There are two parts to this condition. First, you use the house regularly for business on an ongoing basis. Secondly, that it be for some hours every day or for some days every week.
Next you make sure the business part of your house separated from the personal part, and use it for only business. It should not happen that you convert it into a guest room at night and office space in the morning. An exception to this rule is that part of your house where you store business samples. This can be considered personal space.
Also, the home office deduction holds good only for a bona fide business that shows clear profits and clear losses. A business activity that is more of a hobby than a commercial enterprise does not qualify for tax deduction.
In addition to using your home on a regular and exclusive basis for business, it is also essential that your home be your primary place of business. This implies that if you are working from two or more locations, your home is the main office. This can be ensured by using your home work space for most of your managerial and administrative activities.
Thus it is not compulsory that all activities taking place at home should be your chief source of revenue. What is essential is that your home is used for all business events book keeping, ordering goods, planning meetings and for consultations with clients, patients and customers.
At times it may be necessary to prove that you are using a part of your home as an office. For this you should have the following evidence ready:
1. Make a diagram to show which part of your home is being used as your office. (If possible, take photographs to give a clear idea.)
2. Ensure that all business mail comes to your home.
3. Business cards and stationery must list your home address as your business address.
4. You must get a separate phone line installed in the business part of your house.
5. Keep a record of the visits to show that you have actually conducted business at home.