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Taking The Home Office Deductions

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Tax Saving Tips

Taking The Home Office Deductions

Here at the Tax Planning Pros we are always passionate about helping as many small businesses as possible increase net revenue through Tax Planning. It is my hope that with tax tips like these you will begin to see how important it is to put the right Tax Plans in place in order to effectively reduce your tax burden and increase your net revenue. So, today we’ve decided to cover the home office deduction. This is one of those deductions that some small businesses worry about taking. And I hope this Tax Tip will clear up some confusion you may have about it yourself. So let’s dive right in.

Home Office Deduction

  • If your office space is located in your house, you can deduct your bills for utilities, homeowners’ insurance, homeowners association fees, security, and general repairs and maintenance. Mortgage interest and property taxes are deductible expenses if you qualify for home office deductions. You can deduct the percentage of the square footage of your office divided by the total square footage of your house.
  • Calculation

Tax Rate X Savings

House is 4,000 sq ft and your office is 1,000 sq ft. And your rent is 4,000/mo. 25% or 1,000/mo is deduction. Which is 12,000/yr X the income tax rate.

What I hope you take away from this tip

Like many small business owners I’ve spoken with, you are probably thinking that taking these type of deductions would send up a red flag to the IRS. In reality a tax return without home office already has a 3.1% chance of being audited and when you apply either of these home office deductions your chance of an audit goes up to 3.2%.

And as you can see from the Home Office Deduction and the Administrative Home Office Deduction tips, Real Estate professionals and other small businesses like yourself who maintain a home office as your primary place of doing business can achieve significant tax savings when you properly apply these types of deductions.

There are many more deductions and credits that we can effectively apply to reduce your taxes and increase your net revenue. Small business owners should not be afraid of tax deductions and incentives intended by the government to help you legally reduce your tax burden.

I always advise anyone running a business to always seek out tax advice from an expert Tax Planning Professional before implementing any kind of tax incentives on your own. And if you do that you could be well on your way to significantly reducing the tax burdens for your business and thereby increasing your net revenue.

I hope this helps and if you have any questions or comments feel free to reach out to me here on LinkedIn and make sure to check us out at The Tax Planning Pros

Build out your proof!

In addition to keeping receipts for the business condo’s expenses and improvements, you need to prove how many nights you slept in the vacation home or condo for both business and personal purposes.

Notations on your business and personal calendars are helpful but not conclusive. For your business activities, you want proof of why you had to be at the beach home.

And here is one case in point.

Example 3. Sara sells real estate at both her tax and beach home locations. She tracks her prospects and activities at each location.

Do as Sara does. Also, keep your eyes open for third-party and other corroborative evidence of use. Do you have emails, letters, and other proof of why you had to travel to the beach home? If so, print the emails and save them along with the written letters in your tax file.

Do you have evidence of being in the area, such as gas, grocery, and dining receipts?

Proving use of your business condo is easy and takes very little time. Documentation is essential. Don’t pass over this critical step.

And here is just one more part of this tip I’d like to share with you.

Ownership

Do you own the vacation home or condo in your personal name?

If so, and you operate as a

  • proprietorship or LLC taxed as a proprietorship, no problem. Simply treat the business percentage as business expenses on your Schedule C.
  • corporation, submit an expense report to the corporation to obtain reimbursement. See TCJA Creates New Reasons for Accountable Plan Expense Reimbursements for how this works.


Why not use a rental arrangement with your corporation? Because you are an employee who likely uses the vacation home or condo for more than 14 days of personal use, you want to avoid a rental arrangement that could cost you your depreciation, repairs, and similar expenses.

The reimbursement method works and creates no complications. Why not use it?

If the corporation owns the vacation home or condo, you should reimburse the corporation for your personal use so as to avoid the monies showing on your W-2 and increasing your taxes.

This is just another tool in the tax planning toolbox that can help you effectively reduce their taxes. Making taxes work for you instead of you working for taxes means that we must look at tax strategies from every angle and every potential outcome.

By doing this you can effectively lower your tax bill. And who wouldn’t want to reduce their tax bill?

I hope this Tax Tip has been helpful. If you have any questions or comments feel free to reach out to me here on LinkedIn and make sure to check us out at The Tax Planning Pros.

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