How Your Home Office Could Complicate Your Tax Return

Posted by: Brookside Admin

If you're self employed, there are a number of unique challenges and opportunities you should know about before filing your taxes. You face many of the same challenges and opportunities even if you're just working from home and telecommuting. At Brown Kinion and Company, our qualified CPAs help people in any situation file correctly and claim the deductions they deserve. At LifeHacker, Melanie Pinola put together a list of things you'll need to know if you office out of your home. Understanding these potential obstacles helps you better prepare for your tax return. 

  • You're In Charge

One aspect of running your own business that many individuals overlook is that you're in charge of your own taxes. Suddenly, taxes aren't being taken out of your paycheck automatically like they would be if you have an employer. That typically means you'll need to pay estimated taxes at the end of each quarter in order to avoid owing a large lump payment at the end of the year. This can be difficult if you're just starting out and are unsure about how much you'll be making each month. You'll also need to manage your own tax forms, keep detailed records and understand what expenses can be a deduction and which aren't. If you're telecommunting for an established company, many of these issues are resolved for you by your employer. When you're the boss, your best bet is to hire a tax professional to help out. 

  • Home Office

If you qualify to deduct your home office from your taxes, you stand to save a significant amount. Deciding whether you're eligible can be complicated, however. There are three main guidelines the IRS outlines and your home office must meet at least one. 

  1. The office space is where you work the majority of the time. Weekend offices or part-time contract work done at home likely won't count. 
  2. Clients or customers visit this space for business.
  3. Your home office is a separate structure from your house. 

In addition, your office needs to be an exclusive space. If you work in the office half the day, and spend the evening using it as a man cave, the IRS won't consider it a deduction. If you meet the criteria, your deduction can total either $5 for every square foot of office space or the percentage of your home dedicated to office space. 

  • Work Related Expenses

​Form 2106, Employee Business Expenses, is where you can deduct the cost of "ordinary and necessary expenses" purchased for your purposes of working at home. In order to use this deduction, you first must be itemizing on your return. If you're telecommuting, you're limited to deducting only necessary items that your employer won't reimburse you for. If you have a second phone line used only for business, or purchased file folders, pens or printer ink, that could qualify. But, you're limited to receiving a deduction for only the total amount above 2-percent of your adjusted gross income. So, if your total work related expenses totaled $500 more than 2-percent of your income, you'd receive a $500 deduction. 

If you're self employed, you face far fewer restrictions. You'll be able to deduct any expense that's work-related. Plants for your office, website hosting, training classes, auto repair and more can all be claimed in the right circumstances. 

Working from home can greatly complicate your tax return, but the CPAs at Brown Kinion and Company help to simplify things. Contact us to put us to work getting you the refund you deserve.