What can you write off when you have a home office? (Utilities, mortgage, phone, etc.?)
Owning a home business can take a lot of time and money but there are some significant advantages to having a professional home office. You are allowed, as a home business owner to receive certain tax breaks and write offs. So what can you write off when you have a home office? Let's take a look at some great advantage to owning a home business
The biggest change in tax breaks for American home owners is the home office deductions. Under old rules you could only receive deductions if your home business was your principal place of business. In addition to that the space had to be used exclusively for business transactions and there could be no other place to perform these duties. In other words this had to be the only place you were working. It couldn't just be a second job or a job "on the side." Today things have changed dramatically.
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Under the new law a home office qualifies as a principal place of business if:
1. The space is being used by the owner of the business to conduct substantial administrative activities
2. There is no other fixed location where the owner conducts substantial administrative activities.
The key word to look at in these qualifications is "substantial." Anyone who has a home office and does substantial administrative duties in that office can qualify for some great write off benefits. Since home office supplies can run home business owners anywhere from $300 to $3000 dollars monthly you can see where this law can come in handy for you.
Some possible deductions you can receive from having a home office include anything that is the business portion of your home. By business portion I mean the percentage of your house that you use for doing your home based business. Checking with your local office and hiring an accountant to help with specifics is a very good idea because there are certain limits to how much you can claim as your business portion of the home. With that in mind here is a list of some of the items you may be able to claim:
Rent (note that it is much easier to make deductions for a home office if you are renting as opposed to owning a home)
Utilities (most commonly electricity)
Telephone or Internet expenses (since most of the world communicates by using the phone or the computer these are a big part of home office write offs)
Mortgage Interest (notice how I did not say your entire mortgage)
Expenses due to maintenance and operation or any type of repair needed for your home business
Property Taxes
Home Insurance
Along with these direct expenses associated with your business you may also be able to deduct some indirect expenses. Thing such as:
Meals or entertainment associated with your home business- having a business dinner with a client
Business Travel expenses- if you're on a family vacation and know you will be meeting with a client for lunch one day; you can claim that as a deduction for your home office.
Office supplies and equipment- computers, paper, ink, printers, etc.
Although there are many things you can claim as deductions with a home office, there are some things that you can't.
Paying children a salary to answer the phone or washing the "business" car.
You can't deduct education expenses from salaries paid to children wrongfully claimed as employees.
You cannot deduct excessive car expenses when you use the vehicle for personal and business use.
You cannot deduct personal travel, meals, and entertainment saying that "everyone is a potential client."
Owning your own home business is wonderful and there are many benefits to having a personal home office. You can write off a number of different expenses which makes it worth your while. But do be careful at exceeding the number of deductions you try to get as the IRS has a ways of returning the favor sometimes.
