Deducting expenses for your home office can be complicated. One of the more confusing areas is determining just what equipment you can write off — and for how much. The IRS has tons of information on the topic, but it can be difficult to sort through all the deductions offered to businesses.
Setting Up A Home Office
As long as your home office is your primary place of business (or meets a few other criteria from the IRS), you can write off all sorts of expenses associated with maintaining that home office. You can even write off the expenses of setting up a home office, from buying office furniture to rewiring that part of the house. The main requirement is that any expenses from your home office that you plan to write off must have been for your business' benefit, rather than your personal benefit.
Home office like computer equipment can often trip you up when you go to file your tax return. If you're like most people, your home office computer doubles as your personal computer. You use it for emailing family members or for helping your kids with their schoolwork, as well as completing your business' work. But under the IRS' rules, you're only supposed to write off the cost of purchasing your computer equipment (and related expenses) if they're only for business use. In general, you are allowed to write off only a portion of the cost of equipment used for both office and personal purposes.
Large Equipment Purchases
Large equipment purchases are considered business assets. Large equipment might include a vehicle purchased just for use in your business, Deductions for business assets can be complicated, because you can choose to capitalize it instead of simply deducting it. A capitalized expense is deducted over a course of several years in small amounts. It's deducted as amortization, depletion or depreciation. There are some situations in which this choice makes sense: major expenses can reduce your revenue significantly. But if you capitalize those expenses, you can effectively spread the cost out over the entire life of the purchase.
The Tools of Your Trade
If you need specific tools, equipment or even software in order to be able to do your job, those items are tax deductible. If for instance, you make your living from photography, your camera would fall into this category. So would lenses, tripods and photo-editing software. The IRS does expect that, if the life of your tools is substantially longer than one year, you capitalize the expense of those purchases just as you might capitalize the purchase of large equipment.
Double Checking Your Deductions
Because every business is different, the above advice may not affect your business in the same way it would affect someone else's. Before you finalize your tax returns, you may want to consult with your accountant or tax professional.