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Claiming Home Office and Vehicle Expenses
Last Updated 12/03/07
Home Office
Whether you are self-employed or an employee, if you use a portion of your home exclusively and regularly for business purposes, you may be able to take a home office deduction.
Your home office will qualify as your principal place of business if
The home office space must be used regularly and exclusively for business. Any personal use of the area will make you ineligible for the deduction. If you’re an employee, the exclusive use of the home office must be for the convenience of your employer. Also, you cannot take deductions for space you are renting to your employer.
Expenses that you can deduct for business use of the home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs. However, you may not deduct personal expenses, expenses for lawn care or those related to rooms not used for business.
There are special rules for qualified daycare providers and for persons storing business inventory or product samples. Also, this year, daycare providers may choose to use standard meal and snack rates to compute the deductible cost of food for eligible children cared for in their homes.
The IRS often audits individuals who take the deduction, so make sure you have documentation supporting your deductions.
Business Use of Your Car
If you use your car in your job or business and you use it only for that purpose, you may deduct its entire cost of operation. However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.
You can generally figure the amount of your deductible car expense using one of two methods: the standard mileage rate method or the actual expense method. For 2007, the standard mileage rate is 48.5 cents a mile for business miles driven during the year. This will increase to 50.5 cents in 2008. If you use the standard mileage rate, you can add to your deduction any parking fees and tolls incurred for business purposes.
To use the standard mileage rate, you must own or lease the car. To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses. For a car you lease, you must continue to use the standard mileage rate method for the entire lease period.
To use the actual expense method, you must determine what it actually cost to operate the car for business purposes. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to business miles driven. Although the actual expense method may give you a greater deduction than the standard mileage rate, this may not be the case once the car is fully depreciated. You cannot switch to standard mileage method if you started with actual expenses method.
Other car expenses for parking fees, and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.
The law requires that you substantiate your expenses by adequate records or by sufficient evidence to support your own statement. In the case of using your car for business, you must report the total miles driven for the year, the miles driven for business, and the miles driven, if any, for commuting to your job as an employee.
If you are an employee whose deductible business expenses, including car expenses, are reimbursed and included in your income on your Form W–2, your employee business expenses may be deductible as a miscellaneous itemized deduction.