Can You Deduct Costs for Your Home Office?

It’s the first day of March, and as an accountant you know what that means to me: March Madness! Just kidding. (I don’t think I’ve ever even filled out a bracket!) No, what that means to me is that it’s getting down to crunch time for filing income taxes for 2015. Much less exciting, I know.

Here’s something that’s a little more exciting though: For those of you who operate your own photography business, did you know that the IRS will let you deduct a part of the cost of your normal household expenses, like rent and utilities, if you meet a few conditions? That is a fantastic thing, because more deductions = less taxable income = YOU OWE LESS TAXES. And all for bills you’re likely paying anyway!

Of course being the IRS, they do put some fairly specific rules in place about when you’re allowed to actually deduct part of your home expenses.  I’ll discuss each one below:

  1. You must use one designated part of your home either:
  • Exclusively and regularly as your principle place of business, OR
  • Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, OR
  • It must be a separate structure from your main house (like a guest house or disconnected garage) that you use in connection with your business.

To clear up the legal speak, what this essentially means is that you must have a specific portion of your home that you use only for your business. The portion of your home that is set aside exclusively for business does not need to be a separate room or marked off by a permanent partition; even if you have an area with just a desk that you always use to edit your photos, email and call clients, organize your schedule and perform other business tasks, that desk area will qualify as a “specific portion” of your home. If you have a separate building on your property that you use, that separate structure should be designated for business usage in order to qualify for the deduction.

  1. Your home must be your principle place of business. That means that if you can work at more than just your home location, you must evaluate how important are the activities you do at each place of business, and which is the location where you spend the majority of your time.

Your home will qualify as your principle place of business if you use it to perform the administrative, behind-the-scenes activities for your business like emailing clients, editing sessions, and taking care of your accounting, plus you have no other fixed location for handling those tasks. Many of you may shoot at tons of different spots, and that does NOT disqualify you from taking this deduction. Even if you have just one spot you use the most for sessions, you’re still okay as long as your administrative business is handled primarily at your home location. If you occasionally “conduct business” like sending emails and calling clients from other locations that are not fixed, that does not disqualify you from taking the deduction for the business use of your home either as long as it’s not another fixed spot outside your home.

If you have a separate, free-standing structure where you conduct business at your home, you should know you can deduct the expenses for that structure even if it is not your principle place of business. Examples of this kind of structure may be a separate studio, workshop, garage, or even a barn. For example, if you have a separate studio where you regularly meet with clients for photography sessions, you may take a deduction for the expenses related to that structure even if that’s not where you routinely take care of administrative tasks related to your business.

One BIG thing to note: if you have a separate location like a studio that is not part of your home where you perform most of your photography work and additionally do most of your administrative tasks, you will not be able to deduct the expenses for also having a home office where you perform work. In other words, if you rent a studio and it has office space available there, it is likely that you will be unable to deduct any expenses from your home office (but the payments made for rent, utilities, etc… for that studio space will be completely deductible).

The IRS has very kindly provided a diagram to help you know exactly when you are able to take a deduction for the business use of your home which hopefully will make things crystal clear:

Chart

 

So, based on all of that, can you deduct expenses from using your home for business? If so, awesome! If you’d like a little bit of guidance for next steps, please feel free to email me at deborah@thephotographerselement.com and I’ll email you a document that can walk you through gathering the information you’ll need, and even examples of how the deduction will be calculated. I’d love to hear from you!

If you’re not in business yet but you’re wondering if you should be, check out this post where I talk about when you should be in business versus when photography is your hobby.

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Deborah Nash

Deborah Nash

DEBORAH NASH LIVES NEAR GORGEOUS BOULDER, COLORADO, WHERE THE MOUNTAINS ARE CONSTANTLY BECKONING HER TO COME HAVE AN ADVENTURE.

Her best adventures always happen with her handsome husband, her kindergartener who is too smart for his own good (or hers!), her brave toddler who seems to have no fear whatsoever, and her brand new baby girl. She loves photography and how it allows her to capture all her adventures, big and small, and to keep them forever. In order to fund her love of all things photography, she works part-time from home as a CPA.
Deborah Nash

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