Working from home can be a popular option when you're starting your own business or if you don't need to physically go into an office every day. Not only can it save you time and commuting costs, but if you qualify, your home office might save you some additional dollars at tax time.
This deduction is only available to certain self-employed workers. With the Tax Cut and Jobs Act of 2017, employers are no longer to deduct business expenses that aren't reimbursed by employers. So, you'll want to make sure you know how to calculate your home office deduction correctly.
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Consider also: Schedule A: Instructions on How to Itemize Deductions
Home Office Deduction Eligibility
To claim a deduction for your home office, your home office must be regularly and exclusively used for your business. In addition, it must be your principal place of business. For example, if you use your den for personal and business purposes, it doesn't qualify as a home office – at least for tax purposes. If your home office qualifies, you can also deduct your furniture, computers, printer, supplies and other office-related items.
Consider also: Guide to Home Office Deductions
Specific Qualifying Expenses
Learning how to calculate home office tax deductions can be complicated and confusing. The Internal Revenue Service categorizes home expenses into costs that are directly related to your business, indirectly related and unrelated.
Direct costs are those that are only for your home office, such as redoing the wallpaper in the room you use for your office. These are fully deductible. On the other hand, indirect costs are for the general upkeep of your house, such as mortgage interest, insurance, utilities and depreciation, and the portion attributable to your home office is deductible.
This deduction is only available to certain self-employed workers.
Expenses from parts of your home not used for business can't be deducted at all. For example, if you have landscaping done for your backyard, that's most likely unrelated to your business, so you can't deduct any of those costs. Work with a tax professional to learn how to calculate home office deductions.
Calculating Your Deduction
To figure your deduction, you first have to figure the percentage of your home that you use for business purposes. You can either use the square footage method or, if all the rooms in your home are approximately equal in size, you can divide the number of rooms used for business by the total number of rooms.
For example, if you have a 400 square foot home office and your house is 2,000 square feet, you use 20 percent of your home for business. Then, multiply the percentage of your home used for business by your general expenses, and add any expenses that are linked directly to your business.
Consider also: Home Office Deduction: Actual Expense Method
For example, if your general expenses are $8,000 and you have $300 in repairs to your home office, multiply $8,000 by 20 percent to get $1,600 and add $300 to find your home office deduction is $1,900.
The Simplified Method
If you have a smaller home office, you may qualify to use the simplified method for figuring your home office deduction. If your home office is 300 square feet or less, instead of having to total up all of your expenses and calculate the percentage of your home used for business, you can multiply the square footage by the IRS rate – $5 as of the time of publication – to figure your deduction. For example, if you have a 200-square-foot home office, you can deduct $1,000.
Consider also: Home Office: Simplified Method