Home-based businesses can seem daunting, but as a home-based or small business, you’re actually entitled to some amazing deductions on your home workplace. These deductions are available for homeowners and renters alike, and they can add a ton of money to your refund!
Follow along as we demystify this process with critical information you need to save thousands on your taxes.
- Decide between simplified or regular filing
The simplified filing option for calculating deductions allows qualified taxpayers to use general deduction calculations rather deducting specific items. It’s faster, but this method can short you on your return. The regular method requires you to determine your actual expenses, but prefer it, because savvy preparers can get a much better return using the manual method.
- Be sure you’re on the right side of “exclusive use” regulations.
Qualifying for deductions requires you to use your home office space exclusively for your business. Typically, this means you’re using your home office and the supplies in it for your business and nothing else. So a combination office and playroom doesn’t count, but an office printer or a work computer used only for business would.
- Regular use is essential
In addition, you need to use your home office space regularly. If you stick a desk in a room and used it for business a few times a month, you couldn’t deduct that, but a work phone you use every day could be. Granted, “regular use” use is a pretty vague term, but one court case found that around 12 hours a week was enough to qualify.
- Deduct your specifics
To calculate your deduction rate for your office space, compare the total square footage of your home against the square footage of your office. The result is the total percentage of your home’s expenses that you can deduct. For example, if your office is 5% of your total home, you can write off 5% of your office-space related expenses.
But let’s get a little more specific on what counts as an expense.
- Direct expenses: Anything you buy to maintain your business or your business space can be deducted. Things like work phone lines or office repairs, for example, are direct expenses, as are office supplies and gas for business travel. Remember to save your receipts!
- Indirect expenses: These are those percentage-based deductions on things like heat and electricity. Get your monthly bills and write off the percentage of your home office.
- Mortgages, rent, and depreciation: You can deduct that percentage on your rent or mortgage, too! This deduction can be an enormous tax relief for those who work at home. With the help of a tax pro, you can even write off any depreciation costs associated with your home.
All in all, there are some amazing ways you can qualify your home office and everything in it for a tax deduction when you prepare your taxes the smart way, so don’t throw away your money!
Get in touch with us to get you the maximum return possible.