So, you work from the spare bedroom in your house and you’ve been deducting everything, from the phone bill to the heating bill, in your income tax calculation? 

The home office tax deduction is not that simple.  You can’t deduct everything. 

Although there are many financial writers who claim that the home office tax deduction is a perfectly good way to save on your income tax calculation, I beg to differ.

I have heard very important tax professionals tell me, in person, that the home office tax deduction was essentially sealing the taxpayers fate– to an audit.

Yes, the home office tax deduction could be your direct path to an audit.  But that doesn’t mean that you shouldn’t take it. 

Here are a few quick facts you should know about this deduction.

  • Exclusivity:  You can’t simply use a spare bedroom as your home office and deduct it under the home office tax deduction–unless it’s ONLY a home office.   If it doubles as a guest room, or a playroom, or anything else, then you might have a problem . Of course, if you are running a daycare, be sure to ask your tax advisor about the exceptions involving daycare. 
  • The home office must be the primary place of business in order to take the home office tax deduction.  This means that the duties you perform must be of relative importance in order for you to take the home office tax deduction.  A doctor was allowed the home office tax deduction   for the use of the home office in performing administrative duties, despite the fact that the doctor had a clinic where he met patients.
  • Trade of business requirement. Look at what your “trade or business” is. If you take teh home office tax deduction for something that isn’t your trade or business, ie something you do on the side for extra cash such as Internet trading, then you might not be eligible for the home office tax deduction.
  • The home office must be used regularly.  If you want to take the home office tax deduction, your use of the home office can’t be sporadic.

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