Many people in Carbondale work from home. Flexibility, savings and comfort are just a few of the perks that come with the job. However, the conveniences of working from home may also come with the complication of claiming a home office deduction on tax returns.
The International Revenue Service warns against filing fraudulent returns, citing home-based business deductions as one of the most common used in abusive tax scams. Following IRS guidelines when filing can help people who work from home avoid a charge of tax fraud.
There are two main requirements in order to be able to claim a home office deduction. First, part of the home must be used regularly and exclusively for conducting business. Second, the home must be used as a principal place of business. The home does not have to be the only place of business — another place outside the home may be used for business as well — it just has to be used substantially and regularly to conduct business.
There are two options for determining the amount to claim: the regular method and the simplified option. With the regular method, deductions are based on the percentage of the home devoted to business activities. The actual expenses for the home office such as mortgage interest, utilities and depreciation must be calculated according to the percentage of the home devoted to business activities.
The simplified option can reduce calculation and recordkeeping efforts by providing standard deductions such as $5 per square foot of the home used for business up to a maximum of 300 square feet and home depreciation is not factored in to the calculations.
It is also important to keep in mind that there are different requirements for state and federal returns. For example, per diem rates are allowed for federal returns but not on Pennsylvania returns, which only allow for actual incurred expenses.
Tax fraud is a serious crime that could result in significant penalties. Those facing charges of tax fraud may want to seek the guidance of an attorney who can help taxpayers navigate these legal complexities and avoid a wrongful conviction.