The home office deduction is a type of small business tax deduction that allows entrepreneurs to deduct expenses if they run their business from home. If you are one of those entrepreneurs, you likely qualify — who doesn’t want a ‘working from home’ tax deduction, especially if you’re already running your business from a home office?
However, the deduction has several eligibility requirements and there are two different ways to calculate it, so it’s important to closely evaluate whether you’re eligible, and for how much, before claiming a home office on your taxes.
While you do need to work from home to qualify for the home office deduction, you can’t qualify just because you work remotely (even if you never go into an office).
To qualify for the home office tax write-off, you must use a space in your home exclusively for your self-employed business. So, not only do you need to work from home, but you need to be self-employed, and your office space must be used solely for business purposes.
There are a few home office deduction eligibility requirements you need to meet before officially claiming the deduction (in addition to being self-employed and working from home).
Not everyone’s home office looks the same, and thankfully, the home office deduction takes that into account. A home office can be located in a house, apartment, condominium, garage, boat, or any similar structure that you own or rent. A home office can also be located in a separate structure on your property, such as a shed, detached garage, guest house, or guest house, like a mother-in-law suite (some home offices that aren’t even on your property may qualify).
In essence, a “home office” doesn’t necessarily need to be a standalone room inside a house you own. It can be any space you dedicate to running your business, no matter what type of home you live in. To see if your space qualifies, review more deduction details on the IRS website.
The IRS allows you to use one of two methods to calculate your deduction. We’ll review how to calculate each method in the next section. The first method, called the simplified method, doesn’t take your expenses into account. However, the second method, called the regular method, does allow you to deduct a percentage of the following expenses.
There are two methods of calculating the home office deduction. The first method is called the simplified method, since it’s far easier to calculate and you won’t need to track down receipts for all of your home expenses.
To use the simplified method for home office deduction, simply multiply $5 by the square footage of your home office.
For example, if your home office is 150 square feet, you will multiply $5 by 150 square feet, for a $750 home office deduction. The maximum square footage allowed for this method is 300 square feet and the maximum total deduction for this method is $1500.
→ Learn how to calculate square footage
The regular method for home office deduction, although more complicated, often yields a greater deduction amount. This method requires you to figure out the percentage of your home taken up by your office.
For example, if your home is 1,500 square feet, and your office is 300 square feet, your office takes up roughly 20% of your home. This entitles you to deduct 20% of the expenses mentioned in the previous section, including 20% of your rent or mortgage, renters insurance or homeowners insurance, utilities, etc. You can download and fill out Form 8829 (which is the actual tax worksheet) to make sure you don’t miss adding any expenses.
Essentially, you’re deducting the amount of your home expenses that are dedicated to running your business, as a business expense. Any “direct” expenses that are only for your home office can be deducted in their entirety (such as a repair that only needs to be made in your office).
If you’re a small business owner that works from home, claiming the home office deduction can help you save money so that you can reinvest in your business or your personal life. So, it makes sense to try to maximize it wherever possible to improve your savings. Here are a few things you can do to make sure you’re getting the largest deduction:
When it's time to calculate your deduction, use both methods to see which one results in a larger amount. Although it may take some time to calculate your deduction with the regular method, it’s worth doing the exercise to see if it yields a larger deduction.
Since you can deduct a percentage of most home expenses using the regular method, make sure to keep a log throughout the year so you don’t lose track of anything. Keep your receipts and consider starting a spreadsheet so that you always have your home office deduction documentation on hand. Spend a little time each month logging your utilities, rent, insurance, and other expenses so that when it comes time to submit your taxes, you won’t forget about any of the expenses you incurred throughout the year.
If you currently work in an area of your home that doesn’t qualify for the home office deduction (such as your kitchen table, couch, or bedroom), consider carving out a small space. Transform a closet, a corner of your apartment, or even a built-in bookshelf into a desk and use it to help run your business. It’s easy to think that you can’t qualify if you don’t have an extra room available, especially if you live in a small space, but even a very small desk space is considered a home office.
For example, if you currently use a bonus room as a home gym, but you work from a desk in your bedroom, consider swapping the two spaces so that you can dedicate more space to your home office (so that your home office will have a larger footprint and therefore, a larger deduction). You shouldn’t uproot any necessary spaces or make changes that won’t serve your business, but if it would benefit your work to use additional space, it may also improve your deduction.
You claim the home office deduction by completing both Form 1040, Schedule C and Form 8829.
If you use the simplified method to determine your deduction amount, you only need to complete Form 1040, Schedule C. Simply write your deduction amount on Line 30.
If you use the regular method, you will need to complete Form 8829 (Expenses For Business Use Of Home) to determine your deduction amount. The form is relatively straight forward and provides a line for each home expense (including home office depreciation). You can reference the IRS instructions for the form to get additional tips on how to fill it out if needed.
After completing the form, your total deduction will be on Line 36. Write this amount on Line 30 of Form 1040, Schedule C.
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