Tax Deductions For Home Office
If the total of your other business expenses (not including home-office expenses) is greater than your income, giving you a loss, that is allowable. If your office-in-the-home expenses, when added to the total of your other business expenses, take you over the top to give you a loss, that’s not allowable. Only that portion of your home-office expense that takes your total of expenses up to the amount of your gross business income, can be deducted, each year (there is a carry-forward provision). If the total of your home-office expenses added to the total of your other business expenses comes to less than your gross income, the full amount of your home-office expenses is deductible.
SEPARATE EXPENSES
Here’s how that works. Let’s say your stock photography business, operated out of your home, has a gross income (receipts before expenses) of $12,000. Your business incurs home-office expenses of $1,500 (percent of utilities, mortgage interest, roof repairs, and so on). Your normal business expenses, such as office supplies, postage, travel, film, memory cards, etc. total $11,500. Since your gross income was $12,000, you can use only $500 of your $1,500 office-in-the-home expenses as a deduction.
However, you may carry forward the disallowed $1,000 to subsequent tax years; these carried-forward home-office expenses, though, are subject to the same restriction each subsequent year- i.e., they are not allowable if the addition of their total creates a net loss from the business activity.
The room(s) in your home where you conduct your photo-marketing business must be used exclusively and regularly for your photo-marketing operations. The IRS won’t approve the room as a deduction if it’s also used as a sewing room or a part-time recreation room or if it’s part of your living room. If you’ve made a room or large closet into a studio consider that room also as tax-deductible. Measure the square footage of your home (don’t include the garage unless it’s heated or air-conditioned), and then measure the square footage of your working space. Divide the latter by the former, and you’ll determine what portion of your home is used for “profit-making activity.” For example, if your working area is a fourteen-by-eleven-foot room (used exclusively and regularly for your photo-marketing business), and the total square footage of your home is 1,232 square feet, you are using one-eighth of your home for business.
“Business Use of Your Home” is the title of IRS Publication 587. It’s a clear explanation of what you can and cannot deduct. Also check out Booklet 529, “Miscellaneous Deductions.” Write; log on; or phone the IRS for a free copy at (800) TAX-FORM.
It’s important to take all your legal tax deductions to get the biggest possible tax refund. If you are self-employed, this is even more critical. Here is a quick primer on an elusive area of tax preparation: the home office deduction.
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Author: Rohn Engh
Rohn Engh is the best-selling author of “Sell & ReSell Your Photos” and “sellphotos.com.” He has produced a new eBook, “How to Make the Marketable Photo.” For more information and to learn how to sell photos and to receive his free eReport: “8 Steps to Becoming a Published Photographer,” visit his website, PhotoSource International or call 800 624-0266.
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