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Could claiming a home office deduction trigger an IRS audit?

| Jan 25, 2021 | Federal And State Tax Collections |

Though federal tax law has allowed a deduction for expenses associated with a home office for a long time, the fact that so many professionals began working from home for the first time in 2020 means that the deduction is receiving more consideration than usual. Throughout the New York area, taxpayers who have been working full-time from their homes since March are wondering if they qualify for the home office deduction, or if by claiming it, they are exposing themselves or their business to the risk of an IRS audit.

Qualifying for the home office income tax deduction

For a home office space to qualify for the deduction, it must meet at least one of the following criteria:

  • The office is the business entity’s principal place of business
  • The office is the place where the taxpayer normally meets or deals with customers, clients or patients, and the use of the home office is substantial and integral to the conduct of the business
  • The office is in a structure that is not attached to the home and is used exclusively for business or trade

The home office must be used exclusively and regularly for a trade or business. For example, someone who sets up their laptop on their kitchen table during the day and uses the table for dining in the evening would have a hard time successfully claiming their kitchen as a home office for income tax purposes. The only exceptions to the exclusive use rule are home-based day-care facilities and the storage of inventory or product samples for retail or wholesale businesses.

After 2020, a more relevant question than ever

Business owners and employees who have worked at home for years are familiar with the IRS’ requirements for claiming the home office deduction and whether they can safely claim it. But with the way business was done having changed so much in 2020, many more workers may be eligible for the deduction — or think they are when they actually are not. Consulting a tax attorney before filing could help you understand the risks and benefits involved in your particular situation.