April 9, 2012

TaxTip: Do Your Clients Qualify for a Home Office Deduction?

More On Tax Planning

from The Advisor's Professional Library
  • Annuities: Estate Tax The value of certain types of annuities may be included in an estate’s value. Understanding the intricacies of these inclusions is a critically important aspect of estate planning.
  • Long Term Care Insurance: Premiums While premiums for qualified long-term-care insurance may be deductible as medical expenses there are exceptions to this general rule. Learn how to avoid unnecessary tax liabilities.

Certain business expenses may be deducted for income tax purposes under IRS regulations. All ordinary and necessary business expenses paid or incurred in the taxable year in carrying on a trade or business may be deducted.

But what if your client uses a home office? What are the rules then? As treated in Tax Facts Online, here are the answers:

If a client uses part of his or her home for a business, they may be able to deduct expenses related to that business use. The IRS has certain requirements to help determine if they qualify for the home office deduction.

Generally, in order to claim a business deduction for a home office, a client must use part of his or her principal residence exclusively and regularly as the principal place of business, or as a place to meet or deal with patients, clients, or customers in the normal course of a business, or in any connection with the trade or business where the business portion of the home is a separate structure not attached to the home.

For certain storage use, rental use or daycare facility use, clients are required to use the property regularly but not exclusively. Note that there are special rules for qualified daycare providers and for persons storing business inventory or product samples.

Normally, the amount that can be deducted depends on the percentage of the home used for business. The deduction for certain expenses will be limited if gross income from the business is less than total business expenses.

If a client is self-employed, use Form 8829, Expenses for Business Use of Your Home to calculate the home office deduction, and report those deductions on Form 1040 Schedule C, Profit or Loss From Business.

If a client is an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of his or her employer.

For further details and citations on this topic, we invite you to sign up for a 15-day free trial of Tax Facts Online by clicking here. 

To purchase the 2012 Tax Facts on Insurance & Employee Benefits books, please click here.

See AdvisorOne's 22 Days of Tax Planning for 2012 Special Report.

Reprints Discuss this story
This is where the comments go.