What is a home office deduction?

If you are committed to taking every expense possible to reduce your tax liability, you may have asked yourself if it is legal to deduct the space in your home dedicated to work projects. Years ago, having an office-in-home while working as an employee might have been deducted as an un-reimbursed employee expense.

However the Tax Cuts and Jobs Act of 2017 eliminated those expenses. Now, in order to take an office-in-home deduction, you must be a business owner or partner. If you are a small business owner, a home office deduction can reduce your taxable income significantly, and should not be ignored on your schedule C. The good news: Every home-related expense has a potential for factoring into the total expense of operating a home office. So it’s really important to keep accurate records throughout your business year. This is great news if you pay for internet, a cell phone, air conditioning, water, sewer, and electricity. If you own a home, a home office can be depreciated.

However, you cannot simply write off all these expenses. The IRS has published a document, Publication 587 Business Use of Your Home, to assist you in legally calculating these expenses. This blog post is intended to help you keep good records and provide your tax professional with adequate information to take the largest deduction possible.

Where to calculate the home office deduction: Form 8829, Business Use of Your Home.

Calculating the deduction using the simplified method:

The office space can also be calculated using a simplified method, which does offer some advantages. This method calls for a standard deduction of $5 per square foot of home used for business (maximum 300 square feet). Any allowable home-related itemized deductions are claimed in full on Schedule A. The IRS does not allow a home depreciation deduction or later recapture of depreciation for the years the simplified option is used.

If you are looking for other ways to take advantage of tax write-offs, check out my other articles for small businesses. To hire me for a consultation before or shortly after taking the plunge at being your own boss, call me toll-free at (866) 316-1860 or by setting up a virtual appointment with me today!