For the last year and a half, we have been making adjustments to the way we work. The pandemic has made working from home more common lately so it is important to capitalize on your home office deduction.
To start, make sure to find a space in your home that is exclusively dedicated to your working environment.
After you have your dedicated space setup, you can calculate a “simplified” home office deduction. You can start off with two different methods. The first method is on the easier side where you do simple multiplication. Gather the square feet of your designated office space, making sure that it is up to a maximum of 300 square feet and multiply that number by 5.
For example, 150 sq.ft x $5 = $750. As opposed to an annual deduction of 1,500, you now have $750 for your office.
The second most commonly used “regular” method to calculate a home office deduction is a bit more complex, but still doable. Collect and multiply your disbursements that are related to your home by the percentage of your home that is utilized as an office. This method offers the same information, but has more needs in collecting information.
Keep in Mind
As a business owner you can make a dedicated section of your home a work space, but if you have an actual office, say “downtown”, then you may not qualify to write off your home office unless you can show that you use your home as your principal place of business. “For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can also deduct expenses for a separate free-standing structure, such as a studio, garage. The structure does not have to be your principal place of business if it is your “business’ administrative office” and your “downtown” office is your client meeting or sales office space. “ – IRS
Here is a question to ask: What percentage of your gross income is rooted from your home office?
From Pub. 587, the IRS mentions that since a part of your gross business income is from your home office and the other part is from the downtown office, your home office work must be identified.
In order to do this, you need to examine
- How much time is spent at each location
- How much investment is in each location from the business
- Various facts and conditions that impact your home workspace
No matter what method you decide, you cannot deduct business expenses of the gross income limitation in excess. Additionally the basis of the property should include the cost of capital advances. Your home office can also be claimed as depreciation. Some deductions can be made depending on how much of your home is being used. For example, mortgage interest, insurance, utilities, casualty losses, and more.
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If you are unsure if you are maximizing your home office deduction, please contact us by emailing us at [email protected]