Home offices are a popular way for businesses to do their work, especially for small, growing firms and sole proprietorships. Perhaps you happen to operate your business out of your home? Depending on your circumstances, your expenses for your home office may be tax-deductible.
Qualifying to Claim the Home Office Deduction
In order to claim the Home Office Deduction, there are two basic requirements to meet:
- Regular and exclusive use – A portion of your home must be EXCLUSIVELY used for conducting business to qualify. You can designate a spare room as an office, and it can only be used for that. Setting up shop in your garage may end up disqualifying your office because personal usage can often overlap with business.
- Principal place of business – You must demonstrate that your home is your principal place of business. For example, your business may involve traveling to meet clients at other locations but the majority of your operations are still carried out at your home office (phone calls, bookkeeping, filing records, etc.). Generally, deductions for a home office are based on the percentage of your home that is designated for business use.
Methods in claiming the Home Office Deduction
The IRS gives qualified businesses two options to calculate and claim the Home Office Deduction, the simplified option and regular method.
- Simplified Option – Available for taxable years 2013 and onward, this sets a standard deduction rate of $5 per square foot of the home used for a business with a maximum of 300 square ft.
- Regular Method – Instead of a standard rate, taxpayers must determine actual expenses related to the operation of the home office, such as utilities, repairs, and mortgage interest. These expenses are calculated in relation to what percentage of your home is used for the business. Publication 587 has an expansive list of qualified expenses for the Home Office Deduction.
The Home Office Deduction can be claimed on Line 30 of the Schedule C form usually filed with Form 1040. Properly claiming the Home Office Deduction can become an involved process for small and upcoming businesses. Having a knowledgeable firm assist with claiming the deduction and other tax filings can free up business owners to focus on their ambitious growth goals. MiklosCPA is a California-based CPA firm that works with small to midsized clients on their accounting and tax needs. Want to learn more about our services? Schedule a call with us for a quick rundown, and also follow us on our social media for future good-to-know articles like this one.