Can I Have A Home Office If I Have Another Office?

COVID brought along this new way of working for so many businesses that in the past may have said they are never going virtual. One question that we have seen a lot is around if a business owner can take a home office deduction even if they have another office away from home.

That is exactly what we are going to discuss in this article. Note that what we discuss here is specific to business owners.

What Qualifies As A Home Office?

In order for a home to qualify for a home office deduction it must be two main tests.

• Home Office Qualification Test – In order for your home office to qualify as your principal place of business you must meet BOTH of these requirements:
  • You use it exclusively and regularly for administrative or management activities of your trade or business.
  • You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.
• Another key thing the IRS says next is that you can have more than one business location, including your home, for a single trade or business. This is directly from the IRS.
• Lets look at a few key notes from the definition:
  • Exclusively: You cannot consider your living room that you also watch TV and play with your kids in as your home office. 
  • Regularly: Simply put you have to use it a regular basis. If you walk into it once a quarter it will not qualify. 
  • Administrative: This really opens the door up for the deduction. Lets say you are a veterinarian you may do all your normal work at you doctors office but if you come home an answer emails, complete bookkeeping, etc then it qualifies for administrative activities.
  • Substantial: The key here is that if you use your home office for administrative duties you have to do the majority of those administrative duties at your home office and not another office. This meets the second part of the test.

How Do I Calculate The Home Office Deduction?

You have two ways to calculate your home office deduction.

• Simplified Option
  
  • $5 per Square Foot of Qualifying Office Space
  • This method allows you to still claim property taxes and mortgage interest on your personal return should you qualify.
  • If you sell your house with this method you also do not need to recapture any depreciation you may have taken.
• Actual Method
  
  • First you need to find your business use percentage (BUP) which is:
    • Home Office Square Footage / Total Square Footage
  • Take your BUP and multiple it by:
    • Mortgage Interest, Property Taxes, Rent, Home Insurance, Utilities, HOA/Condo Dues, Repairs, Maintenance, Depreciation, etc.
    • Note: If you take itemized deductions this will pull from those and if you sell your house down the road you will need to recapture any depreciation you took.

What Else Do I Need To Know About The Home Office?

Some other important things to consider…

• If you are an S Corporation, take the home office deduction using your Accountable Plan.
• You can create an office in your home as an administrative office. You can have an office outside of your home that you do business activities other than administrative activities. This is true even if you spend more hours at your other office as long as the home is where you do the administrative work.
• A home office is NOT an audit risk if you are doing it right. If an accountant tells you that, they are wrong. Just do not get greedy and make sure you document the necessary items to support your deduction.
• Create a home office enhances your potential automobile expenses and business miles. It takes the non-deductible commute out of the picture.

For more details on this along with documents to help with backing up this deduction check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.