Hidden Savings: Write Off Your Home Office

Working from home can be a benefits bonanza: saving time and money on commuting, spending more time with the family, greater control over your personal life. And, of course, saving money on your taxes. Unfortunately, many people who work from home don't realize they can write off part of their home office.

Home-based businesses occupy a significant sector of the American economy. "According to research commissioned by the SBA Office of Advocacy, home-based businesses represent 52% of all firms and provide 10% of the total revenue of the economy," says Jody Milanese, senior director of Government Affairs for the National Small Business Association. Despite the prevalence of home-based businesses, people who file Schedule C's on their 1040 (the self-employment form) aren't all taking advantage of their tax deductions.

"Only 2.7 million of the nearly 20 million Schedule C filers in tax year 2003 took a home office deduction," says Milanese. "Despite the fact that nearly eight million taxpayers use one or more rooms in their home for business purposes." Milanese and the NSBA attribute this gap to the complexity of the tax codes. In a study they conducted, 68% of small businesses would be more encouraged to take a standard home office deduction instead of itemizing.

While figuring out if you qualify and how much you qualify for might seem complicated, there's a lot of money to be saved with home-based office deductions.

Do I Qualify?
According to Milanese, "to qualify for a home office tax deduction, a business owner must use an area of their home regularly and exclusively for business purposes." The exclusive part is the catch. On the IRS website, an example of a non-qualifying is someone who uses den for business and also as a family room. Beyond the exclusivity requirement, the room must meet one of the following requirements.