How to Know if You Qualify for a Home Office Tax Deduction

We all love a discount wherever we can get one, especially a tax deduction. The great news is, you might be able to get a home office tax deduction. Especially for small-business owners and entrepreneurs, this is a great opportunity to save large amounts of cash with little extra effort. Considering the number of people working from home has increased dramatically since the beginning of the COVID-19 pandemic, the tax deduction is becoming more popular.

There are a few requirements, so to find out if this might be an option for you, keep reading!

The two major requirements, according to the IRS, are:

  1. You must regularly and exclusively use your home office
  2. Your home office must be your principal place of business

Plus, you must be self-employed. Working from home instead of in the office doesn’t apply, whereas running a business from home does.

To define the IRS requirements a little more, regular and exclusive use implies that you must regularly use part of your home exclusively for conducting business. This means that if you have a home office or extra room that is used for your private business, that counts!

Principal place of business implies that you have in-person meetings with clients, customers in your home, or use your home for other business purposes. This bit will require a little bit of calculation, as you must know the percentage of your home that is used or devoted to your business activities.

With a principal place of business, the space must truly be used only for business. Like the US News says, if you do work at the kitchen table and eat there too, you lose your deduction.

For specifics on the tax deductions that may apply to your home, check out this: Publication 587, Business Use of Your Home.

P.S. Even if you are renting, you can still use the deduction! The deduction also applies to freestanding structures, like a studio, garage, shed, or barn space.

If you are looking to determine your how much your home office deduction will be, there are two main ways to do this:

  1. The simplified method
  2. The more difficult method

If you don’t want to worry about specific calculations, slightly complicated record keeping, and measurements, the simplified method is the one for you. Rather than deducting actual expenses, you simply multiply the square footage of your space by a rate. This rate is typically $5 per square foot, up to 300 square feet total. The maximum for this deduction is $1,500.

If you want to be more specific, you will need to keep track of residence expenses. These can include things like your mortgage payments, taxes, maintenance and repairs, insurance, utilities, and other expenses that allow you to run your business from home.

This form can help figure out what counts: Form 8829.

However, there is an important side note here: taking a home office deduction using the expense method could deny you the ability to avoid capital gains taxes while selling your residence. So if you are in the market to move, this might not be the best option for you.

To get the deduction, if you choose to do so, you take it directly on the Schedule C reporting for your business income and expenses. Some more great news with this: even if you are self-employed for just a few months, you can take a partial home office deduction!

If you use part of your home for business, and run your own business, you may be able to deduct expenses. The files and websites copied above have a number of helpful tips for getting this deduction, including requirements, how to file, and whether your business counts.

The simplified filing option can help reduce the burden of recordkeeping and the amount of information required to get a deduction. Using this easy to calculate standard method will allow you to get this home office deduction in little to no time!

Check out the IRS website for more information, and to see if you qualify!

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