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Taking That Home Office Tax Deduction? Be Afraid, Very, Very Afraid

Posted by Naomi Grossman Thursday, Jan 17, 2008, 11:33 AM ET

Where's your home office? If you are like most home-based workers it could be your den, or your dining room table, or your guest room. It would be nice to deduct the costs related to that space but unfortunately the US government doesn't believe you are really working there.

According to a recent Wall Street Journal article many Americans don't take the home office tax deductions because of the law's complexity, its record keeping requirements, and – the biggie – fear of being audited.

WSJ writer Tom Herman states that, according to several lawyers and other advisers "those fears getting audited are exaggerated. He continues: "They say more people with legitimate home offices should consider claiming the home-office deduction, which would enable them to deduct the business portion of real-estate taxes, mortgage interest, rent, utilities, insurance and other items. They also say it's clear from IRS data that most people who claim the home-office deduction don't get audited."

That might be a relief to some -- mainly those few home office workers who can afford to have an office in their house dedicated solely to their small business -- but the real problem with the home office tax deduction is with the law itself.

On Web Worker Daily, Anne Zelenka sums up the issue: "What might be the ultimate barrier for many home-based web workers, however, is the law's requirement that, in order to deduct expenses for your home office, you use that part of the home exclusively as your principal place of business. Very few people use their home office only for work, even if it is their main place of business."

Zelenka adds that this law "hasn't kept up with the reality of work today" and she couldn't be more right. The fact that laptops, wireless networks, and cellphones let home-based workers work anywhere in their house also means that they get penalized for doing so just doesn't make sense.

Does anyone out there use their home office just for work? Let us know.

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