Running your own business can be expensive, but doing it from your home is convenient and can save you money. Finding tax deductions that lower your tax bill each year, like the home office tax deduction, is always helpful. If you qualify for the work from home tax deduction, you may cut your costs to run your business and pay for your home.
Home Office Tax Deduction | Maximizing Business Profit
Who Can Claim the Home Office Tax Deduction?
Many people who claim home office tax deduction run their own business. If you are an employee of another company, you might still be able to take the deduction. Figuring out if you qualify is pretty easy, adding up the amount of the deduction is the harder part.
People who have a home office used only for business purposes generally qualify to claim the deduction. The government says you have to prove the home office is your first place of business. The home office doesn’t have to be a separate room, but having a separate room makes it easier to calculate.
Do I Have to Own My Home to Claim the Deduction?
It may surprise you to learn you don’t have to own your home to claim the home office deduction. The government doesn’t disqualify renters from taking the deduction. This means people who live in tiny apartments or big houses might both qualify for the deduction. Tax rules base the deduction on the amount of square footage you use for work and your total expenses, not the size of the place where you live.
What Does Exclusive Use Mean?
To get the deduction, people have to prove they only use their home office for business. Setting aside a separate room for business purposes makes it easier to prove. Using a home office in a corner of another room might still work, but people have to show they don’t do other things in that space.
There are a few exceptions to this rule. For example, people who run a day care center at home may not have to show an exclusive use of a home office. People who store products of their business at home may avoid this rule, as well.
Does My Home Office Have to Be My Only Office?
Some people do business in more than one place. They may still qualify for the deduction. The home office deduction form says your home office has to be your principal place of business. If you do most of your work at home but meet with customers at other places sometimes, you can probably claim some of your expenses. Employees who work from home may qualify, even if their employer has a separate office. They just have to prove they don’t rent out part of their home to the business.
How Does the Home Office Tax Deduction Work?
If you know you qualify for the deduction, you have to figure out how much you can claim. It can be hundreds or thousands of dollars, depending on your expenses. The government allows you to calculate your actual expenses or rely on a simplified method. If you want to deduct your total expenses, you have to add up a lot of different numbers. These include:
- the percentage of your home used for business
- how much time you used your home for business
- your total expenses to keep your home
You might find it hard to total these numbers. A lot of people use the simplified method if they can.
How Do I Use the Simplified Home Office Deduction?
The simplified method for the home office tax deduction might be much quicker for you to calculate. Start with the square footage you set aside for your home office. You can’t claim more than 300 square feet using the simplified method. Multiply each square foot by $5 (in most cases) to get the total you might be able to claim. Your business income may limit how much you can claim for the deduction. Ask for advice from a tax expert if you need more help calculating the home office deduction amount.
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Finding a way to write off some of your business expenses helps to cut down on your tax bill each year. The home office tax deduction can be a big one if you qualify. Understanding what you need to put on the home office deduction form will make it easier for you to decide if the deduction will work for you.
Do you have an unclaimed home office tax deduction right now? Share your experience in the comments below!