Kelly Phillips Erb, the TaxGirl, has another great post about the pitfalls of home office deductions. In this case, she reports on a Tax Court case in which the Court agreed with the IRS that a taxpayer's bathroom could not be included in his home office deduction.
Kelly's post points out the reason home office deductions are most likely to be audited by the IRS - many people stretch the deduction beyond the limit, thinking the IRS will not come knocking on their doors.
Before Your Home Business is Audited
Key points to remember about your home office deductions.
- The space you deduct must be used (1) regularly AND (2) exclusively for business. A bedroom or part of bedroom that you don't use for anything else might be deductible, but not a bathroom that's also used for personal reasons. (I'm still trying to figure out how a home bathroom could have a business purpose.)
- You can deduct the percentage of the space compared to your home's total living space.
- You can deduct direct expenses related to the home office, like a separate phone line.
- You can also deduct indirect expenses, like roof repairs, using the percentage.
For more information, see Your Home Based Business and Taxes
Deducting home use as a business expense: walk, don't sit
Are you prepared for an IRS audit of your home business?
9 things you should know about your home office and taxes.
By the way, the IRS has a new video to introduce the tax issues for your home office. This quick (1 minute) video points out several issues with home office deductions, including the requirement that you use the space regularly and exclusively for business and that your deduction may be limited if your business is not profitable.
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A Bathroom COULD have a business purpose if you run Childcare from your home…..