As the tax season in the United States begins, the Internal Revenue Service (IRS) is increasing its scrutiny of specific attorney deductions. The home office deduction is one of the most closely scrutinized because it is frequently the subject of errors or fraud attempts.
Even if they receive a monthly Social Security check, taxpayers who fail to meet the established requirements may face an audit and penalties.
This deduction allows self-employed individuals and certain employees to claim expenses associated with using their home for business purposes. However, the IRS has noticed an increase in the number of fraudulent or improperly substantiated claims, prompting stricter scrutiny of these cases.
Employees who work from home under certain conditions can also take advantage of this deduction, in addition to small business owners. However, correctly understanding the conditions and applying the deduction is the key to avoiding issues with the IRS.
Who can qualify for the home office deduction?
In order to claim the home office deduction on your tax return, the space used must meet certain criteria. It is not enough to answer emails or make occasional phone calls from home; the IRS requires that the space be used exclusively and regularly for business purposes. A taxpayer may qualify for this deduction in one of three situations:
- Principal place of business: While the principal activity may be conducted elsewhere, the home may qualify if it is used for essential administrative tasks.
- Meetings with clients or patients: If you get clients or patients at home on a regular basis, the space may qualify as a valid office.
- Separate structure: A garage, studio or other detached building used exclusively for the business may also be deductible.
Meeting these conditions is critical to avoiding IRS problems and ensuring that the deduction is legitimate.
Deductible Home Office Expenses
For those who qualify, it is important to know what expenses can be included on the Tax Return to the IRS. Among them are:
- Property taxes
- Mortgage interest
- Rent
- Casualty losses
- Utilities
- Insurance
- Depreciation
- Maintenance and repairs
The percentage of the home used as an office determines the amount of expenses that can be deducted. For example, if the office takes up 10% of the home, only that percentage of the applicable expenses can be claimed on the return.
Avoid Problems with the IRS
The IRS conducts audits to detect irregularities in tax returns. To avoid penalties, report the home office deduction accurately and honestly. Some recommendations include:
- Make sure the space is used exclusively for business.
- Maintain thorough records of all associated costs.
- Don’t overstate costs or make incorrect deductions.
Taxpayers who attempt to claim this deduction without meeting the requirements risk having their returns adjusted, paying fines, and being subject to additional, more in-depth examinations in the future. Adhering to IRS standards and ensuring that any reported expenses are valid and verifiable are critical to avoiding problems.