The Internal Revenue Service has been offering up tips throughout this tax season, which is more appreciated than ever considering all the tax law changes that have occurred owing to the stimulus bill, among other things.
The IRS explains that taxpayers may be able to take a home-office deduction if they use part of their homes for one of the following two reasons:
- Exclusively and regularly as either: your principal place of business, or as a place to meet or deal with patients, clients, or customers in the normal course of your business. Where there is a separate structure not attached to your home, the regular and exclusive use does not need to be your principal place of business as long as the use is in connection with your trade or business.
- On a regular basis for certain storage use -- such as storing inventory or product samples -- as rental property or as a home day-care facility.
The IRS says the amount you can deduct depends on the percentage of your home used for business. The deduction for certain expenses will be limited if gross income from the business is less than your total business expenses.
Other things to keep in mind, according to the IRS, include:
- If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.
- There are special rules for qualified day-care providers and for people storing business inventory or product samples.
- If you are self-employed, use Form 8829 (.pdf) to figure your home-office deduction and report those deductions on line 30 of Schedule C (.pdf), Form 1040.
- Different rules apply to claiming the home-office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.
The IRS also warns taxpayers against missing the April 15 deadline for filing their returns and paying their tax bills:
- The failure-to-file penalty is, generally, more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
- The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer's unpaid taxes.
- If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
- You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
- You will have to pay a failure-to-pay penalty of half of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
- If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
- If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Be sure to check out the IRS's Small Business And Self-Employed Tax Center for answers to your questions as well as forms.