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Home Office Deduction
The number of home-based businesses is put between 18 million and 38 million; exact figures are not available because the U.S. Census Bureau failed to question whether full-time employees also had home-based businesses. Whatever the number, the cost of operating an office from home may be deductible as long as certain conditions are met. The term “home office” isn’t limited to clerical space; it can include a workshop, greenhouse, artist studio, or any other area of a home used for business.
Whether you work exclusively at a home-based business or operate a sideline business from home, you may be able to deduct a portion of your housing costs, including depreciation if you own your home or rent if you lease it, plus utilities, insurance, maintenance, and other related costs. (Congress is considering the use of a $1,500 standard deduction for home offices in lieu of deducting actual expenses, so check the Supplement for details.) The deduction serves to offset your business income.
There are two types of expenses related to a home office:
- Indirect expenses (the portion of the general expenses of running your home)
- Direct expenses (costs incurred solely in your home office)
You paint the outside of your home for $8,000. If your home office is 10 percent of your home, then $800 of this cost is an indirect expense. If you paid $800 to paint the home office itself, it is entirely deductible (no allocation is required) because it is a direct expense.
In the case of indirect expenses, you must allocate them between the residence and office portion of the home. Usually home office space for purposes of making an allocation is figured on a square footage basis (e.g., if your home is 2,400 square feet and you use 240 square feet as a home office, then 10 percent of your indirect expenses become part of your home office deduction).
Nearly 100,000 refund checks could not be delivered in 2011 because of incorrect addresses. The average amount of each check is $1,547. If you have not yet received an expected refund check, contact the IRS or go to “Where’s My Refund?” (www.irs.gov).
Source: IR-2011-113, Nov. 30, 2011
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