Best Covid Tax Strategies? Home Office Deduction for Business Owners
This tax deduction allows qualified filers to write off their office space when they file their taxes. Since so many people started working from home due to health concerns in 2020, it’s no surprise that lots of us are curious about this deduction. We will go over the home office tax deduction, including who qualifies and how to claim this on your taxes.
Who Can Claim A Home Office Tax Deduction?
The home office tax deduction is designated for business owners. Many people who started working from home in 2020 may hope to use the home office tax deduction, but you must own your own business to qualify. Employees of a company cannot claim this deduction.
For those who own their own business, the home office deduction is one of the most valuable tax tricks available. If you’ve been working from home but don’t own your own business, there are still other ways to maximize your tax deduction. Be sure to check out the other Money Masters resources to learn how to get the most from your taxes.
How To Claim A Home Office Deduction?
Before business owners claim the home office deduction, make sure your workspace qualifies. One of the most important factors is whether the home office is dedicated to your work or a shared-used space. The IRS requires your home office to be regularly and exclusively used for business before you can claim it on your taxes.
Qualifying office spaces must only be used for work. If you run your business from your kitchen counter or the couch in your living room, that isn’t considered an office for tax purposes.
Your home office must also be your primary workspace. If you keep a study or home office for answering emails on the weekends but typically work in an outside office during most of the week, the IRS won’t accept your home office as a write-off. If you regularly work from home and have a dedicated space that’s only used for your work, luckily, that qualifies for the home office write off.
What Can You Claim For The Home Office Write Off?
For business owners who keep a dedicated room in their home as their primary office, the home office write off can cover many utilities and expenses. Look at all your bills and expenses over the year. From repairs and insurance to utilities like Wi-Fi and electricity, think about all the overhead costs that supported your work.
Don’t try to claim 100% of your bills as part of your home office deduction. You’re not using your entire home for your business, so you can’t claim the bulk of your home expenses as a write-off. However, you can claim a portion of these expenses as a tax deduction.
How To Calculate Your Home Office Deduction?
There are two different calculations you can use to determine the amount of your donation. This simple calculation gives a fast and easy way to determine your deduction based on square footage. Alternatively, you can calculate your deduction more accurately using a little more math.
The simple calculation method, start by measuring the square footage of your home office. Then multiply that by $5 per square foot to determine your deduction. For example, if your office is 200 square feet, multiply that by $5 to arrive at a $1,000 deduction. This simplified method has a value cap of $1,500.
You can also figure out a more precise deduction by calculating the exact percentage of your bills that go towards your home office. You’ll need to determine precisely the area of your home office relative to your entire house. If your home is 1,000 square feet, and your home office is 100 square feet, your office is 10% of your home. Using this method, you can write off 10% of your home bills as your home office deduction.
Learn More About Tax Deductions
Business owners who work from a home office can use the home office deduction to reduce their taxes, but this isn’t the only way to optimize your taxes.
Vincere Tax is here to take all the heavy lifting for you. Don't let this tax season stress you out. Shoot us an email or drop a question below. We would love to hear from you.