Doing Your Homework- How to Maximize Your Home Office Deduction

If you are a business owner, working from home, you may be eligible for tax deductions on part of the rent or mortgage payments you make, but you may be afraid this puts you at risk of tax audits. And, rightly so. Calculating your home office deduction properly can minimize your taxes and keep you out of risk.

There are two ways to calculate your deduction provided by the IRS: the simplified method and the regular method.

Assuming your home office is regularly and primarily used for your business operations, you can choose the method that gives you the biggest deduction. Let’s take a look at each method and see what kind of benefits can be provided.

The simplified method is based on the square footage of the office space. To determine your deduction, multiply your home office square footage by $5.00. For example, if your allowable home office square footage is 60 sq. feet, you would multiply that by 5 to arrive at a deduction total of $300.00. This method is as easy as it gets and makes calculating your home office deduction a breeze.

The regular method is based on adding up expenses you’ve paid to maintain that space, such as mortgage payments, rent, utilities, and internet access. The percentage of your home you regularly and primarily use for your home office will be another variable. To use this method, you will have to do some math, but the total deduction may be higher than it would be using the simplified method.

To maximize your home office write-off, you should run your numbers through both methods. Determine which method will maximize your home office deduction and use accordingly.

One other option, if you rent your home, is to enter into two separate lease agreements with your landlord. One lease with you personally for part of your rent, and the other lease with your business, for the part of your rent that is specifically for the space that is used for your business. In that case, you would not take a home office deduction, but instead, categorize your business rent expense as office rent on the expenses part of your tax return.

Not sure which is best? Contact us to discuss options for how we can support you in maximizing your tax deductions with advice from a tax advisor you can trust, with our support.

While being a successful business owner, you don’t want to get caught up in all of this legal mumbo-jumbo stuff! Lucky for you, we have created something called the Access Plan, which helps business owners protect their legacy. We can schedule a free Shatterproof Session to get you jump started!