Combine the computer, Internet, their companion technologies, and an unused corner or room in your home together; and you have the most essential components of a great home office. With a home office, you become your own boss, do business in your pajamas, work during the schedule you want, work anywhere you like, and still enjoy life!
Additionally, such an arrangement allows you to take a tax reduction for your home. But before you can write off your home-office expenses, you should know how you can qualify for a tax deduction for a home office.
1. Is the space assigned for your home business used only for business?
Your home-office space should be used exclusively and regularly for your business; this criteria should be met before you are eligible for tax deduction. That means your office space must be used always (a few times a month doesn’t count) only for business for IRS to consider a tax reduction.
Needless to say, this criterion alone will disqualify many people who want to claim this deduction. Note, however, that you don’t have to create a partition to separate your workspace from home space. A workstation in the corner can be considered a workspace if you spend a considerable amount of time in that place.
2. Do you really need to work at home?
Did you put up a home office for your convenience or for the convenience of your employer? If your employer has a for you to work in, then you cannot expect a tax reduction for setting up a home office; why do you need to work at home when you can do that in the office? Your employer must prove that you need to work at home (i.e. no more workspace available, saving on office rent, etc.) so you can file for tax reduction. Of course, this provision is modified if you intend to have your own business at home.
3. Does your business comply with the requirements?
This is especially applicable if you have more than one home-based business. Do all your businesses comply with the first two requirements as mentioned above? If they don’t, then don’t expect the IRS to accede to your request.
4. If you are eligible for tax deduction, is your deduction more than your income?
Your business’s total deductible expenses should not exist exceed your business’s income for which the deductions have been extracted. For instance, if the total deductions sum up to 1,000 GBP and your business only earned 800 GBP, then only 800 GBP of tax deductions can be implemented for that year.
Go ahead and enjoy some much-appreciated tax reduction.