Home Office Tax Deduction | Who QUALIFIES, What's Tax Deductible?
Are you a small business owner who works from home or do you run your own business out of the home?
Most entrepreneurs and small-business owners who work from home don’t realize that their business is eligible for the home office deduction. The home office deduction is a popular item on tax returns and it’s important that small-business owners take advantage of this valuable opportunity. While not everyone will qualify, the home office deduction can be a major financial boost for professional services providers and those working from home because it enables them to write off more of their expenses.
Here’s what small businesses should know about the home office deduction.
WHO QUALIFIES?
Generally, there are two basic requirements for the taxpayer's home to qualify as a deduction:
Typically, a component of the residence must be used exclusively on a regular basis for commercial purposes. For instance, if a taxpayer utilizes an additional room exclusively and regularly for their business, they are only allowed to claim a home office deduction for that additional room.
The taxpayer's primary place of business must be their house. If a taxpayer conducts administrative or managerial tasks from home because there is no other place to do so, they can also satisfy this criterion. As a result, a person who runs a business outside of the home but simultaneously uses the home office deduction may still be eligible.
HOW TO DETERMINE YOUR HOME OFFICE DEDUCTION?
You have two options for claiming the home office deduction: regular and simplified methods.
You are not deducting actual costs when you choose the simplified method option. Instead, a set multiplier is applied to your space's square footage. For spaces up to 300 square feet, the price is $5 per square foot.
The regular method which is the hardest and more challenging way rates your home office by comparing real costs to your total housing costs. Mortgage interest, taxes, upkeep and repairs, insurance, utilities, and other costs are all deductible.
How to you determine your home office deduction? The answer will remain the same even if you qualify for one of the simplified options. Use Form 8829 to figure the allowable expenses for business use of your home on Schedule C (Form 1040) and any carryover to next year of amounts not deductible this year.
The home office deduction is a valuable tool for anyone who owns a home that also serves as their primary place of business. There are many ways to value your home office space, but it’s best if you know how much you can deduct before you start your calculations.
Hopefully, you now have a better idea of if and when you can deduct your home office. And, with the information we've shared above, you should have a better understanding of how to maximize that deduction in the eyes of the IRS.
If you're still unsure of how to proceed, don't worry—actuaries and tax professionals at ACTvisory are ready to help. We can walk you through the steps towards qualifying for this deduction, as well as help you determine what percentage your home office can be deducted at. There's no need to fumble through the confusing process on your own anymore! If you want expert advice on how to get the most out of your home office deduction, SCHEDULE FREE CONSULTATION with us today!