For the person who works out of their home, there are a lot of expense deductions that can be taken when it comes to income tax time. If you aren't sure if you can deduct something, or you aren't sure where to start, spend some time on the IRS website or consider spending the money to hire an accountant. Even that expense is a deduction!
Can You Claim a Home Office?
One of the first considerations in regards to taking expense deductions for a home office is that you have a space that is dedicated to your business. If you do your work from the couch while watching TV or hanging out with your kids, this isn't going to cut it. But if you have dedicated room in your home that you do the majority of your work from, you may qualify.
This space needs to be the main place that you do business. You can still go to a client's location to work but the space in your home needs to be the home base -- think of it as the place where you store all the paperwork related to your business.
How Much Can You Claim
There are two methods that you can use to determine how much of a deduction you are going to get for your home.
Method A: Multiply the amount of space dedicated to your home office (up to 300 feet) and multiply this by $5 per square foot. That is the total of the deduction for your home office. This is a simple calculation but you may end up getting a much smaller deduction this way.
Method B: This is the method that people had to use before 2013. Using Form 8829, you will determine how much of your home is used for your business and then you get a percentage from that, such as 15% of your home is used for the business. From there, you are able to use 15% of qualifying home expenses for expense deductions on your income tax. There are a variety of household expenses you can use such as mortgage interest, utilities, and repairs made to the work. But you need to make sure these expenses relate directly to your business so renovating your bathroom across the house from your office won't qualify.
How to Take the Home Office Deduction
If you are self employed, this deduction is included on line 30 of your Schedule C. For employees, this deduction goes on Schedule A, Itemized deductions. If you do not qualify under either of these, you will want to visit the IRS website for more information and see if you can take a deduction.
Exceptions
As with everything else, there are always exceptions and it is no different when it comes to expense deductions. If you run a daycare in your home, you likely use a lot of your home. As a result, there are different rules for this type of business. A business that stores inventory in the home also qualifies for special rules.
Lone Star Tax Group