Working from Home
If you use any part of your home
for business, you may be eligible for
some home office deductions. The
IRS has very speciic requirements,
however, when determining if you
qualify for these deductions. Two top
considerations are the importance
of the activities you perform in your
home and the amount of time you
spend doing the work.
According to the IRS, a home office
must meet two requirements
to qualify as your principal place of
business. You must use the space exclusively
and regularly for administrative
or management activities for
your business, and you must not
have another fixed location where
you conduct substantial administrative
or management activities.
EXCLUSIVELY means you use a definable,
specific area of your home only
for business. The dining room table
where you pay the bills but also enjoy
family dinners would not meet
the requirements for a home office
deduction. That being said, the area
does not have to be a completely
separate room within your home. If
you use a 6-foot by 8-foot portion of
your 12-foot by 12-foot family room
for your desk, computer, file cabinet
and bookshelf, you could use the 48
square feet you use for business purposes
as a deduction.
There are exceptions to the exclusivity
policy. If part of your garage is
used to store inventory or product
samples, for instance, you may be
able to claim a business deduction.
There are five different criteria that
must be met:
- You sell products at wholesale or
retail in your trade or business.
- You keep the inventory or product
samples in your home for use in
your trade or business.
- Your home is the only fixed location
of your trade or business.
- You use the storage space on a
regular basis.
- The space is separately identifiable
and suitable for storage.
A photograph of the space you
plan to claim is a good way to document
the deduction. An audit may
arise several years after you have
filed the return, and you may have
moved from the home by the time
you get notice. Using pictures for
documentation when you can is a
good way of meeting IRS requirements,
and ensures you’ll be able to
do so if or when an audit arises.
REGULAR use does not mean you sit
at your desk for eight hours a day, 40
hours per week. The IRS uses what
is called a “facts and circumstances”
test to determine if the deduction is
allowable in the taxpayer’s specific
situation. The amount of hours Mary
spends utilizing the space may be
different than John, who does all of
his accounting and bill paying himself.
Again, documentation is key,
and can be as simple as logging the
time you reserve for necessary paperwork
tasks in your appointment
book.
Administrative and management
activities can include any time you
spend on essential components of
your practice, other than time spent
doing massages. Paying bills, updating
bookkeeping records, confirming appointments, reading technical
and educational journals, developing
your marketing plan or opening
mail are just a few examples.
Once you’ve determined your
space qualifies for the home office
deduction, you need to gather the
information to complete the necessary
form. The calculation of the
business percent will apply whether
you rent or own, but will not apply
in cases where you do neither, including
living with your parents or a
partner where you pay no rent.
The home office deduction is calculated
on form 8829, and the allowable
expense is entered on line
30 on your Schedule C return. This
deduction will decrease your profit,
effectively lowering both the income
tax and the self-employment tax.
Back
<1
2
3
4
5
6
7
8
9
10>
Continue
|
American Massage Therapy Association®
