The tax write-off you claim for your home business isn't a set dollar amount like a standard deduction. The amount you claim depends on how much of your house you devote to your business and what housing expenses you have to deduct. It also depends on you meeting the IRS standards for taking the deduction.
To write off any expenses related to the business use of your home, you have to use your home as your principal place of business. To the IRS, this means it's where you regularly meet with patients, clients or customers or where you do most of your work. If you work mostly outside the home but you do bookkeeping and administrative tasks in your office, that's legit too. You also qualify if you use your house to store supplies or inventory on a regular basis, or to run a day-care center.
Your home office or storage space has to be completely for business. If you make business calls from the kitchen or review legal briefs in your bedroom, that doesn't cut it. The percentage of your home expenses you can write off depends on the percentage of your home you use only for business. If your house is 1,800 square feet, for example, and you use 150 square feet to store supplies, that's 8 percent of your floor space. You can therefore deduct 8 percent of your general housing expenses, such as your mortgage interest, homeowners' insurance and utilities.
You can deduct 100 percent of any expenses you spend solely on your business space, such as the cost of painting the room or buying a file cabinet. Money you spend solely on other rooms, such as repainting your bedroom or replacing kitchen countertops, isn't deductible at all.
You report business expenses along with business income on Schedule C. Unlike other business expenses, there's a catch: If home expenses push your business into the red for the year, you have to carry over the loss to next year rather than take it now. Use Form 8829 to figure out how much of your expenses you can write off and what you have to postpone. If you claim mortgage interest as an itemized deduction on Schedule A, subtract whatever you claimed for your home business to get the non-business deduction.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.