At one point or another, many Illinoisans who are self-employed or employees of a company, have asked the question widespread throughout the United States – can I deduct home office expenses? This is one of the most critical and complex components of tax preparation of many self-employed and employed individuals. To those in the state of Illinois, who are seeking clarity about home office deductions, this article will provide a comprehensive overview of the associated rules and regulations, and provide tips to help ensure they comply with pertinent regulations.

When defining the term “home office,” it refers to the part of the house — in Illinois and throughout the United States — where an individual’s primary business activities occur, such as meeting with clients, writing documents, or using the phone for business. There are two primary deductions available to those in the state of Illinois, dependent on their level of income. The home office deduction — otherwise known as a “simplified” deduction — generally requires fewer calculations, and is limited to $1,500 for the 2020 tax year. However, if an individual’s home office expenses are more than the maximum amount for the simplified deduction — the individual can choose the second option, the full/actual deduction.

Full/Actual Deduction

The full/actual deduction allows an individual to deduct a greater amount than the limited simplified deduction. In order to be eligible for this, the individual must calculate their total claimed expenses (this includes rent/taxes, mortgage interest, insurance, utilities and repairs). Although this deduction does require more calculations, it will likely result in a larger tax return for the individual.

How Does One Qualify for either Deduction?

In order for an individual to be eligible for either the simplified or full deductions, certain criteria must be established:

1. The home office must be “regular and exclusive” use. This means that the Illinois inhabitant’s business activities must be the only use of the designated area, and must be solely occupied by the business for a good part of the day.

2. The primary place of business must be elsewhere. This means that the home office should not be deemed as the principal area of business — the individual can not operate solely out of their house.

3. The business space cannot be in a personal residence located in an area that is zoned for residential use.

Other Requirements

In addition to the aforementioned, an individual who is declaring either deduction in the state of Illinois should be aware of specific legal requirements.

First, one should be aware of the fact that the two deductions — the simplified and full — are considered a “miscellaneous itemized deduction.” This means that it is classified as an “above the line deduction,” which reduce the amount for “adjusted gross income.” This deduction is only allowed if an individual itemizes their deductions; therefore, one should be aware that itemizing deductions is what allows an individual to declare home office deductions.

It is also important to be aware that if one’s miscellaneous itemized deduction should exceed two percent of their total adjusted gross income, the individual is still allowed to deduct the amount of the excess. Additionally, depreciation of the business property should be taken into consideration, meaning that the amount that was spent must be depreciated over 39 years.

Lastly, one should be aware of applicable limitations when declaring the deduction. those who claim the home office deduction are limited to deducting their total costs which was originates from their home office. This includes all supplies, utilities, repairs, and other home office expenses.

Declaring a home office deduction in the state of Illinois can be a beneficial process for individuals who are interested in reducing their taxable income. For those who are self-employed, wage earners, or working towards having their own business, it is pertinent to be aware of the nuances regarding the available deductions, and what qualifies an individual for which deduction. This article is meant to provide a concise and comprehensive overview of the available deductions, as well as noteworthy legal requirements that should be adhered to by those in the state of Illinois.


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