Tax-Free Wealth Author, CPA and CEO Tom Wheelwright outlines legal home office deductions that are most overlooked by small business owners with two new checklists. In these summaries, Wheelwright clarifies eight personal deductions and five business deductions that CEOs should track for taxes.
If an accountant raises red flags over home office deductions, it may be time to find a new tax advisor. Wheelwright explains why, “While home office deductions may have been a red flag 20 years ago, if done right, there is no reason the IRS would ever know you are taking a deduction for your home office."
Wheelwright expands, "If an accountant suggests not taking any legitimate deduction, it’s probably because the accountant is afraid of the IRS. It’s never a good idea to have a tax advisor who is afraid of representing the taxpayer on legitimate tax benefits before the IRS. After all, the tax law is a series of incentives that is designed to encourage commerce, and rewards business owners for contributing to the economy with jobs, investments, expenses and research.”
To explain the tests for a home office deduction, Wheelwright adds, “Your home office is a deduction specifically allowed in the tax law. So long as you meet all of the tests, including maintaining a space used exclusively for your business and documenting your use of your home office, you can deduct part of your utilities, maintenance and other expenses associated with your home.”
A great tax benefit that comes with qualifying a home office is that a portion of personal expenses to maintain a home can be deductible. Wheelwright shares these two Home Office Deduction Checklists for Personal Expenses and Business Expenses for small business owners:
1. Personal Expenses Checklist for Home Office Deductions - To help taxpayers better understand personal expenses for the home office that are legally deductible, Wheelwright provides a checklist of items to consider. The top eight personal expenses that may be deductible include: Mortgage Interest, Property Taxes, Homeowner’s Insurance, Utilities, Security, HOA dues, Cleaning, and Pest Control.
In contrast, pool maintenance; lawn maintenance, landscaping and the first phone line into a home are not deductible. Wheelwright clarifies, “However, your entire cell phone usage may be deductible if you use your phone for business.”
2. Business Expenses Checklist for Home Office Deductions - Along with personal expenses, a small business owner can deduct business expenses for a home office. It is important to track and deduct these five business expenses: Supplies, Equipment, Furniture, Separate Business Phone Line, Repairs made directly to the home office, and other expenses that are 100% for business use. In addition, commuting is a lot shorter with a home office. Having the home office means that travel to customers, clients and other business locations from home is deductible.”
Some of these expenses are only deductible with a home office. Even for expenses that are already deductible, such as your mortgage interest and property taxes, the way in which the home office calculation works means the deduction for these items is not subject to limitations that might otherwise apply, especially if the taxpayer is subject to the alternative minimum tax (AMT).