Can a Home Office Be Considered a Business Expense?

Hudson Resident Looks for Answers

One deduction that can add up for small business owners is the home office.  However, take this deduction carefully as it can trigger an IRS audit.  You can qualify for this deduction if the area is used exclusively and regularly for business purposes.  This area must be used as the principal location for the business, or it is a place where you regularly meet with customers.

A Hudson resident had just begun life as an entrepreneur and was looking for tax savings related to his fledgling business.  He turned to Merrimack Tax Associates for help.

The Home Office Deduction

This deduction can be very lucrative for small business owners.  However, it can also trigger an IRS audit as it is often a red flag.  Ensuring that it is taken correctly can prevent any problems down the road. To qualify for this deduction the space must be used exclusively for business purposes.  This should be a separate room, or set of rooms, or a clearly divided section of a room.  The area cannot be used for any purpose other than business or you forfeit the opportunity to take advantage of this deduction.

If the room is only used occasionally, this cannot qualify for the home office deduction.  The space must be used exclusively and regularly to do business.  In addition, this area should be the principal location for your business.

Calculating the Deduction

The home office deduction is calculated passed on the square footage for the area that has been designated solely for business use.  In 2018 this rate was $5 per square foot, with a maximum allowance of 300 feet.

For the Hudson resident, his business operations do qualify him for this deduction.  Ensuring that he follows the guidelines set forth by the IRS will ensure that there is no harm done even if he is selected for an audit.