If I Sometimes Work Out of My Home, What Can I Claim?
You can, of course, deduct the *direct* costs incurred due to your employment or business. For example, the cost of *supplemental" homeowners or renters insurance paid - because you meet with clients at your home - would be an ordinary and necessary business expense.
However, if you are looking to deduct costs that would otherwise be personal in nature ... such as the a portion of your apartment rent, depreciation on part of your residence, or utilities prorated to the home office ... there are several rather strict rules that come into play, which are discussed below.
Note: Started in tax year 1999, the home office NO LONGER needs to be the
"principal place of business" for your work for your employer, nor is it necessary
that you meet with clients or customers there. It qualifies if is required in
order to do the administrative and managerical functions of your employment,
for which suitable space is not furnished elsewhere.
In order to qualify for a deduction for business use of your home as an employee, you must meet EACH of these criteria:
1. The use of the office must be a condition of your employment, and NOT an accommodation for your convenience.
2. The room or space used as an office must be used completely and exclusively as such. There can be NO other use whatsoever.
3. The office must be your only fixed location of business in which you can reasonably perform the managerical and administrative functions of your job OR you must meet with customers or clients in that office as a routine part of the job.
Example: Mary's employer moved from Phoenix to Tucson, but is allowing Mary to keep her job by telecommuting from an office in her home. This does not meet Rule #1 above, since the usage is for her convenience, not her employer's, so she does not have to relocate or commute to Tucson.
Example: John is the manager of a retail operation that sells merchandise in a rented booth at an indoor swap meet, which is accessible only three days a week and includes no office or stockroom space. Part of John's duties include scheduling, ordering and sales tax reporting, which cannot reasonably be done at the regular business location, so John maintains an office in his home that is used exclusively for that purpose. This meets all three criteria as above.
Example: Gail is a college professor, who is provided an office on campus to which she has unlimited access. However, Gail maintains minimal office hours there, and prefers to work out of a larger office she maintains in her home. There is no deduction allowed for such use, since it violates Rules #1 and #3 above.
Example: Bob is required by his employer to maintain an office in his home, which is the only fixed location of the business. Bob spends 90% of his time traveling to customers in the region, and conducts only administrative duties in the office. It qualifies for deduction, under all three criteria.
Example: Let's say that Bob (the example directly above) allows his son to use the home computer in his office when Bob isn't home, in order to do homework. This disqualifies the deduction under Rule #2 above.
