If you use your home as an office, you can claim tax deductions on it. This can lower your income tax bill, freeing up your hard earned money to reinvest in your small business.
There are two key requirements for your home to qualify as a tax deduction: it should be exclusively used for your business, and you should regularly operate out of it.
There are two ways to claim the home office deduction: the simplified option and the regular method.
The simplified option is, as you might have guessed, much simpler.
You can charge up to $5 per square foot up to a maximum of 300 square feet - which generates a cap of $1,500.
With the regular method, you can claim a tax deduction based on the percentage of space your home office takes up in your home and your exact home-related expenses. Using this option, you can claim home-related expenses such as rent, mortgage interest, utilities, insurance, repairs, and more.
It is, however, more complicated, and by the time you have calculated everything and filled it into your return, you might not end up saving money.
Types of home office expenses
The IRS has created two categories: direct and indirect.
Direct expenses are things you will only use in your home office. This could include an office chair, or painting your home office.These are 100% deductible.
Indirect expenses are costs you incur maintaining your entire home and are based on the percentage of your home that is used for businesses. So if 10% of your home is used for your business, you can write off 10% of your utility bills, mortgage, the cost of repairing the roof, and more.
If you rent, you apply the percentage of your home you use as an office to your monthly rent, and deduct that from your return.
Looking for help with your tax return? Find out how Fincent is helping small businesses like yours file accurately, efficiently, and on time. Hiring a professional can save your business from overpaying taxes.