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Calculate Your Home Business Space Deduction

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Calculate Your Home Business Space Deduction

If you have a home business, you want to be able to claim the expenses associated with this business on your tax return. To qualify for a business tax deduction for your home business, you must meet certain basic requirements. This article explains these requirements, shows you how to calculate the deduction percentage, and details the expenses you can deduct from your taxes if you qualify.

First, the space you are using for your home business must meet IRS requirements: (1) The business must be legitimate; (2) The space must be used as your principal place of business or for specific business purposes, like meeting clients or doing business paperwork, and (3) the space must be used "regularly and exclusively" for business. Read about "Home Office Tax Scams to Avoid" to learn more.

The space used for the business is determined by one of two methods:

  • The Area Method
    Divide the area used for your business by the total area of your home. For example, if your home is 2000 square feet and your home office is 400 square feet, your office space is 20% of the total area of your home.

  • The Number-of-Rooms Method
    Divide the number of rooms used for business by the total number of rooms in the home (use this method if the number of rooms is about the same).
In most cases, the area method is the best, since most homes do not have rooms of equal size.

Next, the types of expenses you can deduct for your home business...

Back to Taxes and Your Home Business

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