Home Office Expenses That Might Be Tax Deductible
Nowadays many people choose to work from home: Many entrepreneurs and startups founders started their work from their garage, bedroom, kitchen table, etc. A lot of single parents choose to work from home to have the flexibility to take care of their family while working. Unfortunately most of these people have a misconception that since they are working from home, they cannot deduct their expenses. The truth is that you can deduct your ordinary and necessary business expenses that you incurred by working from home much like if you were renting an office space. These home office deductions can be a valuable tax break for your business. Make sure you do not over look them!
Changes To Home Office Deductions
Before the enactment of the Tax Cut and Jobs Act (TCJA) home office expenses were tax deductible for those who were self employed as well as those who were employed and had home office expenses. TCJA, however, limited the home office expense only to those who are self employed. As a result, employees are no longer able to deduct their home office expense.
As mentioned above, your home office expenses are tax deductible only if they are considered (1) ordinary and (2) necessary expenses for your business. Moreover, in order to deduct home office expense, as a self-employed, you must use the area of your home that is considered your home office "regularly" and "exclusively" for business purposes.
Two Options To Deduct Home Office Expenses
If you qualify for home office deduction, you can chose between these two options:
- Write off your expenses proportionate to the area of your home office. For example, if your home is 2,000 sq.ft. and your home office is 200 sq.ft, you can deduct 10% of your expenses such as mortgage/rent, property tax, utility expenses, cleaning and maintenance expenses, insurance, depreciation, etc.
- Take the "Safe Harbor" deduction by simply deducting $5 for every square foot of your home office space. In the example above you will be able to deduct $1,000.
Here we covered only the surface of home office deductions. To see if you qualify to write off your home office expenses and to maximize such deductions, please contact us.