If you've taken the leap from a brick-and-mortar job and set up shop in your own home, you'll want to make sure you're prepared for tax season. This is especially important if you plan on utilizing the home office deduction to reduce your tax liability. The home office deduction is a great way to keep more of your hard-earned money, but you need to make sure you're ready if the IRS decides to audit you. Here are three steps that will help you pass the home office test.
Prove Exclusive Use of Space
If you plan on taking the home office deduction, you need to prove that your office space is used exclusively for your business. That doesn't mean that you have to dedicate an entire room to office space. It does, however, mean that you must dedicate a specific portion of your home to office space. For instance, if you use a corner of your bedroom as your office, that corner needs to be set up like an office. It must be equipped with everything you would use for your office – such as a desk, chair, bookshelves and computer. It's important to note that if you have a bookshelf in your office space, it must not contain any personal books or belongings.
Use Your Home Address for Business Mail
One of the easiest ways to prove that you operate your business out of your home is to have your business mail delivered there. Using your home address on your mailing labels, advertising and business cards establishes that address as your place of business. Be sure to provide your accountant with documentation that you use your home address as your primary business address. This information will help your accountant argue the home office deduction should you be audited.
Purchase Office Supplies Separately
If you're also going to be deducting the supplies that you purchase for your home office, you should make sure you purchase those supplies separately. In other words, make sure that you don't mingle your family groceries with your office supplies. By keeping your purchases separate, you'll be able to provide receipts that show only those supplies you use for your business.
If you run a business out of your home, and you plan on deducting your home office from your taxes this year, be sure you're prepared for an audit. Use the tips provided here to help you pass an audit for your home office. For more info, contact a tax preparation company like Tri Check Inc.
