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Home Office Deduction Criteria



hscompanies-home-office-deduction

Do you use your home for business?

Do you use your home for business? If so, you may be able to deduct expenses for the business use of your home, such as: mortgage interest, insurance, utilities, repairs, and depreciation.

You must meet two requirements in order for your home to qualify as a deduction.

  • You must use your home office space regularly and exclusively for business.
  • You must run your business primarily out of your home office.

 
Keep in mind that typically home office deductions are based on the percentage of your home that is devoted to the business. If you use a spare room as your office, you’ll need to calculate the percentage of your home you have devoted to business activities.

If you telecommute and want to deduct your home office workspace, you must meet the follow criteria:

  • The use of your home workspace must be for the convenience of your employer.
  • You can’t rent any part of your home to your employer and use the rented portion to perform services for that employer as their employee.

 
Daycare providers have special qualifications for deducting their workspace. You may be allowed to deduct business expenses for parts of your home, even if you use them for non-business purposes.

  • You must be providing daycare for children, people age 65 or older, or for people who are physically or mentally unable to care for themselves.
  • You must have applied for, been granted, or be exempt from having one of the following: a license, certification, registration, or approval as a daycare center, family daycare home, or group daycare home.

 

To learn more about deducting your home business workspace, contact H&S Companies.

Sources:
Home Office Deduction
Publication 587, Business Use of Your Home  

Are Your Travel Expenses Deductible?



deducting travel expenses

Stop! Just because you’re driving to work doesn’t mean you can deduct the expense.

In a recent Tax Court case, the court found that a taxpayer’s attempt to deduct travel expenses to his temporary worksites was not valid. Because the taxpayer’s worksites were temporary, he felt his permanent worksite was his home and, therefore, deducted his travel expenses to the temporary sites. However, the evidence did not show that there was any place where the taxpayer normally worked during the year from which the travel to the temporary sites would then be deductible.

Deducting Travel Expenses

Determine your tax home

  • Tax Home: Your tax home is typically your regular place of business or post of duty, regardless of where you live.
  • If you regularly work in more than one place, then you must determine your main place of business or work by asking yourself: (1) How much total time do you ordinarily spend in each place? (2) What is the level of business activity in each place? (3) Is your income from each place significant?

Decide whether you want to deduct standard mileage rate or actual car expenses

  • If you qualify to deduct car expenses, you may be able to use the standard mileage rate to figure the deductible costs of using your car for work. Remember, if you use the standard mileage rate for the year, you may not deduct actual car expenses for that year (maintenance, repairs, etc.)
  • Alternatively, you may be able to deduct actual car expenses which include the following: depreciation, licenses, gas, insurance, garage rent, parking fees, registration fees, repairs, etc.

For more information read, Publication 463, Travel, Entertainment, Gift, and Car Expenses. Questions? Contact H&S.

Job Search Expenses May be Deductible



Costs associated with looking for a new job may be deductible.

Costs associated with looking for a new job may be deductible. Below, is a list of what you need to know:

  • The costs must be related to searching for a job in the same occupation as your pervious job
  • Costs associated with preparing and mailing resumes, as well as, outplacement agency fees are deductible
  • Travel expenses and mileage may also be deductible if the time was primarily spent searching for employment
  • To claim job search expenses, list them as miscellaneous itemized deductions in Schedule A

What Doesn’t Qualify?

  • If there was a large time lapse between the end of your last job and the start of your search, then expenses are not deductible
  • Expenses related to those pursing their first job are not deductible

Remember, to keep receipts and any other proof of searching for a job. Be sure to make notes of date, time, mileage, and a description of what you were doing while traveling if you plan to deduct travel expenses. If you have questions regarding whether your expenses qualify for this deduction, please contact an H&S representative.

Another Charitable Contribution Deduction Lost on a Paperwork Technicality

charitable contributions perks

If you made a charitable contribution and received a ‘perk’ in return, such as a free round of golf, you need to make sure you document it correctly.

Last week, a couple was denied their $18.5 million deduction due to a paperwork technicality, this week there was another case of a taxpayer losing their deduction based on a paperwork problem.

A $25,000 charitable contribution deduction was rejected because the donee organization failed to document whether the donor received any ‘perks’ as a result of the donation.

Why Does This Need To Be Documented?

This needs to be documented because you may only deduct the donation less any perks received. Here are a few examples:

  • You donate $200 to your favorite charity and, as a thank you, they give you two tickets to an MSU football game. The tickets have a fair market value of $100. You may only deduct $100 because of the ‘perk’ you received.
  • Concert tickets go on sale with all proceeds supporting your favorite charity, so you buy them for $50. The concert tickets have a fair market value of $14. You may only deduct $36.
  • You buy tickets to a benefit dinner for $500. The fair market value of the dinner and drinks you receive is $100. You may only deduct $400.
  • At a silent auction you bid $5000 on and win a flat screen TV. The fair market value of the TV is $1000, so you may only deduct $4000.

 

What if I received documentation from the organization I donated to, but they failed to document all the required information?

Contact the organization as soon as possible to receive proper documentation! The IRS has been cracking down on compliance with charitable contribution deductions, so you will want to make sure to keep your paperwork organized and ready for next tax season.

Further Reading + Useful Links
This Tax Season is Almost Over, But Stay Organized for Next!
In the News: Couple Loses $18.5 Million Deduction on Technicality
IRS Publication 561, Determining the Value of Donated Property
IRS Publication 526 (2012) Charitable Contributions

Form 8283, Noncash Charitable Contributions