Understanding the Home Office Deduction for Business Lawyers in Los Angeles
Navigating IRS Regulations for Home Office Deductions in Los Angeles: A Challenge for Business Lawyers3 min read
For business lawyers in Los Angeles seeking to understand the nuances and requirements of claiming the home office deduction, navigating the complicated and outdated Internal Revenue Service (IRS) regulations can be a daunting task. Whether you need an occasional consult or a full-service legal staff, UpCounsel’s experienced attorneys have you covered. Our attorney community’s profiles display client ratings and reviews on their recent work — giving insight into what to expect before you hire.
To simplify the complexities of the home office deduction, this article provides an in-depth discussion of the history of the home office deduction, the eligibility requirements to receive this deduction, the specific expenses included, and the maximum amount of deductible expenses individuals can claim from qualifying business use of their home.
Background and Overview of the Home Office Deduction
The IRS home office deduction offers home-based business owners the opportunity to deduct certain expenses related to the use of part or all of their home for business purposes. In 1982, the IRS acknowledged that it would review the home office deduction on individual tax returns. The application of this deduction became popular during the 1990s as the transition from a manufacturing economy to a service economy increased the need for entrepreneurs and self-employed individuals to set up offices in their homes. In 1999, the IRS amended the related form and created new requirements for claiming the deduction.
Although claiming the home office deductions of up to $30,000 is possible, it is important to note that the home office deduction is still an activity that the IRS closely scrutinizes for potential abuse. Therefore, business lawyers in Los Angeles must not only be familiar with IRS regulations, but also be able to correctly classify qualifying and non-qualifying expenditures.
Before business lawyers in Los Angeles claim the home office deduction, they must determine their eligibility. The IRS has established a few criteria in order for individuals to be eligible for this deduction. The IRS has determined that:
* The home office must be used regularly and exclusively for business, according to IRS Publication 587. This means that the space cannot be used for non-business activities and repetitions in another room can render the room ineligible to be considered a home office.
* The business owner must be self-employed and file a Schedule C (Profit or Loss from Business), Schedules C-EZ (Net Profit from Business) or Schedule F (Profit or Loss From Farming).
* A qualifying home office must also represent an area of the home that is exclusively used for business operations. If the business owner uses a significant portion of the space exclusively and regularly, then that area can be considered the home office.
WHAT CONSTITUTES EXPENSES?
According to the IRS, the home office deduction can be taken on business-related expenses associated with the upkeep and operation of the home office. There are two primary categories of deductions: direct and indirect expenses.
Direct expenses are specifically related to the home office’s upkeep or continued use. These expenses are deducted directly from the Schedule C, EZ, or F form. Common direct expenses include:
* Paint, wallpaper, window treatments, and other further interior decor
* Flooring, carpeting, and other floor covering
* Adding or installing additional outlets
* Repairing of damage*
Indirect expenses refer to the expenses related to the upkeep of the entire home. These expenses are taken as a standard deduction and are not associated with the home office space. The following indirect expenses are examples that business lawyers in Los Angeles may take a deduction for:
* Homeowners or renters insurance
* Mortgage interest
* Property taxes
* Utility costs
MAXIMUM AMOUNT DEDUCIBLE
According to the IRS simplicity rule, people can opt to take a normal deduction for their home office space rather than calculating each individual expense. The maximum deduction allowed under this arrangement is $1,500 per year. If, after calculating the individual expenses business lawyers in Los Angeles find they qualify for a higher amount, then they can go ahead and claim the higher amount.
Understanding the home office deduction can be a daunting task. However, having a thorough understanding of the history, eligibility requirements, deductible expenses, and maximum amount that can be deducted is important for business lawyers in Los Angeles to make informed decisions on how to proceed. By being aware of the specific categories of expenses and an awareness of the maximum deduction that can be taken, business lawyers in Los Angeles can help clients correctly and lawfully file their tax returns.