Accounting News and Notes

Should Your Business Take a Home Office Deduction?

For business owners who might run their business out of their home, tax law allows for you to deduct the prorated business use portion of the home which is being used exclusively for business. Thus, your dining room where you entertain guests will not qualify unless of course you take the dining room table out and put your office in there, using it solely for that purpose.

However, due to tax law allowing only to deduct the building and not the land, the building being depreciated over an extended time period, and that you are only able to deduct the business portion of the home, I find it generally not advantageous to take the deduction. Given the limitation of the deduction that tax law requires, I have generally found that the burden of the record-keeping for both the client and myself to be unduly burdensome for the limited amount of tax savings afforded.

I advise my clients not to take a home office deduction. In evaluating all potential deductions I try to keep my client’s pocketbook in mind as spending roughly the same amount in professional fees as the tax savings allowed seems not be a primary benefit of those I serve, the client.

When you are furnishing your office whether it be in space your business or yourself own (as long as the area is dedicated exclusively to your business) the expenditures are valid payments of the business. If you operate your business out of your home this will hold true as well, however you should be sure to only deduct the prorated business use portion of expenses such as utilities. I recommend that for these expenses the business owners pay the expenses personally and then turn in an expense report to obtain reimbursement for the business use portion.

Being an expert at running your business does not make you one at the responsibility of accounting for your business. By applying our decades of experience we are well suited to guide you to track the financial and operational affairs of your business.

This entry was posted on Wednesday, October 3rd, 2007 at 8:08 am and is filed under Tax News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.