Since I'm bogged down here in my home office today and don't have a lot of time to blog, I thought a few words about the tax considerations of working from your residence might be appropriate.
The Taxpayer Advocate's recent report to Congress cites government data showing the number of home offices jumped about 20 percent between 1999 and 2005. The report also estimates that slightly over half of small business are home-based. But, according to the report, "many" business owners don't take the home-office deduction.
One reason home-based workers avoid it: The home-office tax deduction has long been considered to be an automatic invitation to a tax examiner. But that's not necessarily so. Really! I swear that's what tax experts tell me!
Another reason some taxpayers don't claim the deduction is that it's complicated and demands more record keeping and additional tax-filing duties. Plus, if you hire a professional to do the job for you, you face added costs.
But in many cases, it's worth the trouble.
The key, as with all business deductions, is to get the most of the tax break while also attracting the least attention from the IRS. To do that, you need to know the rules (following them is implicit!) and substantiate, substantiate, substantiate!
When you do that, you'll be able to claim the deduction, reduce your tax bill and keep the IRS happy, too.
Now I have to get back to my home office duties with regard to a paying client, so let me direct you to a couple of articles with much more about the home office tax break.
This story I did for Bankrate takes a look at the depreciation component of claiming a home office.
Tom Herman, who writes the weekly Tax Report for the Wall Street Journal, recently examined the fear factor associated with the deduction in this article.