Home Office Deduction Audit Risk

Will the home office deduction increase your audit risk. If you run a home based business you may be eligible to expense the use of home office space and reduce your tax burden. The home office deduction has a reputation for being an audit red flag.

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But is it even true.

Home office deduction audit risk. Bark people have worried for decades that home office deductions flag their returns for audit. In fact the home office deduction didn t even make a recent kiplinger list of the top 15 audit red flags. There are several kinds that commonly appear on tax returns such as home office deductions. There s a lot of confusion around the home office deduction because many remote workers who took the break in the past are no longer eligible the tax cuts and jobs act eliminated the home.

168 1993 taxpayer relief act of 1997 the requirements for claiming the home office deduction are detailed in the internal revenue code section 280a. While this may be true in some cases you have nothing to worry about if you have good records and actually qualify for the. Irs home office deduction rules. Some people fear that claiming a home office deduction will raise a red flag for the irs.

The irs rules required for a home office deduction include. Use irs form 8829 to calculate the allowable deduction of home office expenses for your company. But if your deduction is both reasonable and. To ensure that you qualify review the rules and restrictions of the home office deduction with your tax advisor.

How to deduct your home office without an audit. But if it s handled properly the risk of an audit from taking the deduction is actually quite low. Possibly if it doesn t comply with irs regulations and it seems excessive for your business or income. The home office deduction which is optional is capped at 1 500 per year and based on 5 per square foot for up to 300 square feet.

Another kind of deduction that can boost your odds of being audited is the business expense deduction. Regular and exclusive use. This use occurred after business hours and presumably. In another court case cook v commissioner tc memo 1997 338 an attorney was denied deductibility for a portion of his residence used as a home office because while the residence was in fact the principal place of business for his law practice the portions used for business were also personally used by the attorney and his family.

Yet more than half of working americans work for a small business or own one.