How-To Get the Most Out of Your Home Office Deductions

home office

The home office deduction could be worth a lot of money.

If you run a small business in your home, it might be challenging to find valid deductions to help save on your taxes. Especially if you work online, where it’s unlikely the cost of physical goods, shipping, or employee wages will help offset your income.

There are a few things you can claim, though, to reduce what you owe the IRS. One of the biggest areas for deductions is your home office.

What a Home Office is, and is Not

Per the IRS definition, a home office is “a portion of your home set aside exclusively for business use.” You have to be able to show that your home office doesn’t serve any other purpose. For instance, even if you do most of your work at the kitchen table, you won’t be able to claim the kitchen – or even part of it – as a home office because the IRS knows other personal business goes on there.

You also must be able to prove that your home office is “the principle place of business.” If you have an outside office, and only occasionally use your home office, you may not qualify for a deduction.

How the Home Office Deduction Works

Your home office deduction will be calculated as a percentage of all your housing expenses. For example, if you’re using a spare bedroom as your home office, you could measure the square footage of that room and compare that to the square footage of the home to figure out what percentage of space you’re using for business.

Using that figure, you can calculate how much to deduct from your taxes for mortgage interest, utilities, depreciation, and home repairs. Plus, if you do any business online, you may be able to deduct the cost of your Internet service.

Other Deductions in Your Home Office

In addition to the percentage of home expenses the home office deduction includes, don’t forget the items that actually make that room an office. Your furniture, office equipment, your computer and everything else you need to operate your business are all deductible. Your accountant or tax professional will be able to help you determine whether it makes sense to count these items as an expense or to depreciate them over a period of years. To make it easier on them, keep track of everything you spend on office equipment.

When you’re running your own business, it can seem like you’re paying a lot of taxes. That’s because some of the tax burden used to fall to your employer, and now you’re responsible for all of it. The home office deduction is one way to help offset those higher taxes, so make sure you’re claiming every square foot you’re entitled to.

Photo credit: Sean MacEntee

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