The Internal Revenue Service (IRS) has increased its scrutiny of specific attorney deductions as the United States tax season gets underway. The home office deduction is one of the most closely examined because it is frequently the target of mistakes or fraud attempts. Those taxpayers who do not comply with the established requirements could face an audit and possible penalties, even if they get a Social Security check monthly.
This deduction allows self-employed individuals and certain employees to claim expenses associated with using space in their home for business activities. However, the IRS has detected an increase in the number of fraudulent or improperly substantiated claims, leading to stricter oversight of these cases.
Employees who work from home under certain conditions can also take advantage of this deduction, in addition to small business owners. However, correctly understanding the conditions and applying the deduction is the key to avoiding issues with the IRS.
Who can qualify for the home office deduction?
In order to claim the home office deduction on your tax return, it is critical that the space used meets specific criteria. It is not enough to answer emails or make sporadic calls from home; the IRS requires that the area be used exclusively and regularly for business activities.
There are three situations in which a taxpayer may qualify for this deduction:
- Principal place of business: While the principal activity may be conducted elsewhere, the home may qualify if it is used for essential administrative tasks.
- Meetings with clients or patients: If you get clients or patients at home on a regular basis, the space may qualify as a valid office.
- Separate structure: A garage, studio or other detached building used exclusively for the business may also be deductible.
Meeting these conditions is key to avoiding problems with the IRS and ensuring that the deduction is taken legitimately.
Deductible Home Office Expenses
For those who qualify, it is important to know what expenses can be included on the Tax Return to the IRS. Among them are:
- Property taxes
- Mortgage interest
- Rent
- Casualty losses
- Utilities
- Insurance
- Depreciation
- Maintenance and repairs
The percentage of the home used as an office will influence the amount of expenses that can be deducted. For example, if the office occupies 10% of the home, only that percentage of the applicable expenses may be claimed on the return.
Avoid Problems with the IRS
The IRS conducts audits to detect irregularities in tax returns. To avoid penalties, it is essential to be accurate and honest when reporting the home office deduction. Some recommendations include:
- Make sure the space is used exclusively for business.
- Maintain thorough records of all associated costs.
- Don’t overstate costs or make incorrect deductions.
Taxpayers who try to claim this deduction without meeting the standards risk having their return adjusted, paying fines, and being subject to further, more in-depth examinations down the road. Adhering to IRS standards and ensuring that any reported expenses are valid and verifiable are the keys to avoiding issues.
