- 1). Identify whether you qualify for a home office deduction. For an area of your home to be considered eligible, it must be used exclusively and regularly to conduct business, deal with business clients or store inventory or product samples. If the area used is a licensed day care or a separate structure, you may take the deduction as long as it is connected with your business, whether or not it is exclusively used for that purpose.
- 2). Calculate the percentage of your home that is eligible for the home office deduction. This can be done by dividing the square footage of the area used for business by the total area of the home. Use IRS Form 8829 to determine the eligible dollar amount that can be taken as a deduction. This will be reported on IRS Form 1040, Schedule C.
- 3). Claim a deduction for a home day-care if your home or a separate structure on your property was used for this purpose during the year. Include the number of hours the area was used as a day-care center during the year. To find this number, multiply the number of hours the facility is used for business each day by the number of days it is used for this purpose during the year.
- 4). Determine whether you are considered an employee or self-employed. If you are an employee, the IRS requires that home office use be for the convenience of the employer and that rent is not being paid on the area by the employer.
- 5). Calculate depreciation allowable for your home office. Depreciation is the reduction in value of your home due to usage, wear and tear and passage of time. It is considered a non-cash business expense by the IRS. Use Form 8829 to determine the maximum allowed deduction for depreciation of your home.
- 6). Ensure that all expenses that will be deducted are considered exclusively related to the business. For example, a home phone line that is also used to conduct business is not allowable as a business deduction. For the deduction to be allowable, the business line must be separate from the home phone line.
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