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Tax Write Off
The Home Business Tax Write Off - Do You Qualify?
Ron Espy
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Defined Tag: Tax Write Off.
Do you qualify for a home business tax write off? Assuming that a taxpayer’s activity is classified as a business and that the business has an office in the taxpayer’s home, there are other criteria that must be met in order for any home office tax write off.
The office in the home must be used as the primary place of business, it must be used exclusively and on a regular basis for business only. If the designated home office is used 8 hours a day for business but kids or other family members in the evening or night use it for recreation to watch movies or play computer games, it fails the exclusive use test and does not meet the standards for a home business tax write off.
The exclusive use test has 2 exceptions:
1 - Storage space - If a business sells products, the designated area for storing inventory will be excluded from the exclusive use test. However, the storing area must be identifiable and specific to qualify for the home business tax write off.
2 - Day Care Services - When day care for children, elderly or handicapped individuals is regularly provided in the home. The business tax write off is calculated using a formula. This formula based on the number of hours of business use and total use is applied to the allowable home business tax write off.
The term “Regular” use means that a designated area is used on a continuous basis. Incidental or occasion use does not meet the criteria. This is true even if the area is used for no other purpose. The courts and Internal Revenue Service have not specifically set the number of hours per day (or per week) the office must be used for the purpose of business. The time element depends on the facts and circumstances of each individual case.
The term “Regular” use means that a specific area is used on a continuous basis. If used occasional or incidental then the use does not meet the threshold, even if the area is not used for any other purpose. Neither the courts nor the IRS has specifically stated how many hours per day (or per week) the office must be used for business purposes. The time element depends on the facts and circumstances of each individual case.
The home office is considered a principal place of business if it is used by customers, patients, or clients to meet with the taxpayer in the normal course of business. If you are emloyed outside of the home, this must be for the convenience of the employer not the taxpayer to qualify for a home office tax write off.
Congress saw that almost every business needed a place where a business owner can store records, complete paperwork, as well as care of other administrative duties. The Taxpayer Relief Act of 1997 effectively expanded the definition of "principal place of business". Thus tax payers can qualify for a home office tax write off if the home office is used for conducting management or administrative activity, and the taxpayer has no other fixed location to do so. This takes into account that the business may be one that primarily sells or provides services outside of the home and does not regularly meet with clients or customer in the home.
This recognizes that self-employed people need someplace to work and for most a home office would be the place. So you would qualify for a tax write off. Also, a home business tax write off can be claimed for business expenses incurred with the regular use of a seperate structure. A structure not attached to the home, for example a mechanics garage, artist's studio or a florists greenhouse.
As illustrated whether a home based business or home office qualifies for a tax write off is determined by different variables. Some that are set standards others that are determined on a case by case basis by the courts or IRS. This can be a slippery slope, be sure to seek and attain the advice and services of a competent tax professional prior to filing taxes for your home based business. This is wise not only to ensure you don't claim a deduction in error, but also to be sure that the business is not missing any other home office tax write off that is available.
There is more information available from the Internal Revenue Service what qualifies as a home business tax write off or home office tax write off.
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