Taking Inventory of Home Office Deductions

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And please note, if you use your home to provide day care or to store inventory or product samples, different rules apply.

One more thing: If your gross income from the small business operated out of your home is less than your total business expenses, your deduction for certain business expenses is limited. However, expenses that can't be deducted because of this limitation can be carried forward to the next tax year, again limited to the gross income for that year.

To fully understand the IRS rules in this area, you need to read Publication 587 "Business Use of Your Home." The publication is available at http://www.irs.gov or by calling 800-829-3676. Believe it or not, the publication is easy to understand and includes a number of examples and a chart to help you determine whether your home office qualifies as your principal place of business.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

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