Working from home entails a few special considerations when it comes to making deductions for business expenses in your income tax returns. Here are some of them. Click here to read or watch more IRS Help resources.
The area in your home you use for your work must be exclusively used for work purposes on a regular basis. This applies to whether your place of work is in your home or in a separate venue not attached to your home. If the place is for day care, rental use or storage, it must be used regularly only but not exclusively for your work. In the case of work done for such purposes at home, IRS publication 587 stipulates the special rules and conditions that apply.
Generally, the amount that you can deduct depends on the proportion of your home used for work purposes. If your total business expenses exceed your gross business income, there is a limit to the amount you can deduct for certain expenses as stipulated in IRS publication 587.
If you are an employee who works for your employer in your home, the considerations for tax deduction differs. For example, the regular and exclusive use of the section of your home for work must be for the convenience of your employer. This is explained in IRS publication 587.
The form you need to use when submitting your business deductions for income tax purposes is IRS Form 8829, Expenses for Business Use of your Home. Together with this form come four pages of instructions to be adhered to when filling up the form called ‘Instructions for Form 8829’.
In addition, if you submit your claims for deductions by mail, you need to ensure that your submissions are complete and get to the IRS on time. Of late, there have been a growing number of complaints about the IRS’ audit-by-mail program. Sometimes you may get a letter from the IRS stating that certain deductions that you claimed for could not be granted and extra taxes will be levied on you unless you provide the IRS with the supporting documentation within 30 days.
The complaints about this IRS system are that the correspondence audit results reported by the IRS are inaccurate and overstated. Furthermore, there are often delays in the mail processing system resulting in the documentation you send not getting to the IRS employee in time. As a result, you may be assessed extra taxes. Although these extra taxes can be abated if levied in error, but it takes time, an average of 159 days to be exact.