The Home Office Deduction
If you have a small business or are an entrepreneur, you may have a small office or you may work from home. You could find some big write-offs in your taxes if you meet all the IRS requirements. If your home is regularly used for business related activity then the IRS may consider the rent, utilities and repairs as major write-offs.
Who qualifies, what qualifies and what to watch out for can all be important when filing your taxes. For small business owners, filing taxes can become a headache, but if you know the basics you will know what to look out for. You can take all documents and prepared information to your tax expert when it is time to file.
Who Truly Qualifies For A Home Office Deduction?
As stated previously, if you work out of your home and own a small business, whether you are homeowner or renter, you can deduct expenses related to your home. Single-family homes, apartments, or condos are common write-offs, but temporary use of space (hotel, Air BNB, etc.) cannot be used in your deductions.
You will need to use Form 8829 to deduct your home office space and simplify other deductions you may qualify for. Most small business owners work in a garage or home office space to fulfill their duties. Therefore, any small business, so long as you follow all rules by state and county, can qualify for eligible write-offs.
What Qualifies For A Home Office Deduction?
If the whole or even partial space is used exclusively for business deductions can be made on taxes pertaining to the use of the space. You should be aware that you cannot use your office space for other activities. For example, it cannot be used as a bedroom for a child and an office - this may be in fact ineligible to claim deductions.
Other exceptions may determine if you need licenses for services rendered, such as a daycare for children or elderly personnel. You must have all the proper certifications to carry on with your business and claim deductions on your taxes.
Along with your mortgage, you can write off some indirect expenses- insurance, real estate taxes, general home repairs, utilities, etc. Indirect expenses can be based upon the percentage of your home that used specifically for your business. Direct expenses related to your business can be written off in full- such as painting, repairs to office, equipment bought and repaired, etc.
Example: You pay $4,000 in mortgage interest, $1,000 in insurance premiums and $2,000 in utilities (all counted as indirect expenses) plus $550 on a home office paint job (direct expense) during the year. Your home office takes up 200 square feet in a 2,000-square-foot home, so you may be eligible to deduct indirect expenses on 10% of your home.
That could mean a deduction of $700 in indirect expenses ($7,000 in expenses, multiplied by the 10% of space used in the home), plus $550 for the direct expense of painting the home office, for a total deduction of $1,250.
Things To Watch For Before You File
Trying to keep all files and paperwork in line before you file can cause a bit of anxiety, but if you know what to save it may help ease some stress. As a small business owner, you should be aware of saving all receipts, invoices, and understanding the basics of taxes for your state.
You should keep a file for each minor and major expense you make in the process. You can also write off mileage and other office equipment pertaining to your entrepreneurship.
The easiest way to know what to save and look for is to contact your personal tax expert. Your tax expert will help you every year to get the most out of your deductions and help you file your taxes the right way to maximize your deductions for your home office.
Credit: Gina Robertson
Proofing and Editing by: Tiffany Slifka