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Archive for May 5th, 2018

Home Office is not an audit Red Flag

Posted by taxguru on May 5, 2018

One of the most common myths I have been hearing and reading for decades is that claiming a deduction for an office in the home is going to cause IRS to audit your tax returns.  Kiplinger even made this idiotic claim in a January 2018 article on IRS audit red flags

Nothing could be further from the truth and it’s a shame that so many people have essentially forfeited the tax savings this deduction would produce based on such erroneous info. 

This kind of ignorance might be expected from non tax pros; but it turns my stomach when I hear someone say that their tax advisor told them to not claim a home office deduction in order to avoid IRS problems.  That borders on malpractice.  Any tax pro with that opinion needs to be avoided.

Having prepared countless amended returns to pick up missed home office deductions for new clients over the years, there has almost always been a larger related benefit; much larger deductions for business vehicle mileage.  When it is established that your business day begins at your home office, additional trips to any outside business locations, such as another office several miles away, are considered to be deductible business miles instead of nondeductible commuting miles.  On several amended returns, the tax savings from the home office deduction was in the hundreds of dollars, while the tax savings from the increased business mileage was in the thousands.

My motivation for this update is a recent IRS news release, where they are actually encouraging small business owners to claim the home office deduction. 

For Small Business Week, IRS offers tips to small business owners about the overlooked home office deduction

Unless you believe that this is some kind of dastardly entrapment scheme to lure in unsuspecting future audit victims, I would say that this should lay to rest the fallacy that claiming a home office deduction is an Audit Red Flag.

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