When it comes to filing taxes, documentation is key. Without solid proof to back up your figures, you risk getting into hot water with the IRS, especially if you are audited.
In a previous blog, I gave you important information regarding the home office deduction. I detailed the requirements needed to qualify and listed caveats that could make or break your eligibility. It is critical that you realize that the home office deduction is available only to people who are operating legitimate businesses from their residence. Uncle Sam doesn’t tolerate people who file for the home office deduction when they are actually indulging a hobby and trying to pass it off as a business venture.
To prove that you are running a bona fide business from your home it helps to take photos of your workspace and keep good records. This means maintaining appointment books and writing down the names, addresses and phone numbers of all of the customers you do business with. In addition, make note of the date, time and purpose of your meetings. You can add this information to files which feature receipts for business-related expenses. According to the IRS, you should keep this documentation for at least three years.
The purpose of documenting in detail all of your meetings is that it shows that you are fulfilling the principal place of business requirement included in the home office deduction. Basically, you are trying to prove that you regularly use part of your residence to meet with clients or potential clients. The IRS mandates that you use the space for business meetings “regularly.” That’s a loose term, though tax law experts say that using the space for meetings one or two days a week is likely enough to qualify. You can also use your business space for other work-related purposes, such as scheduling, bookkeeping, and completing orders. However, if you use the same space to host out-of-town guests, play Bunco, watch movies or video games, you won’t be able to qualify for the deduction.