Whether you rent or own, if you work from home you need to know about the home office tax advantage. It can potentially reduce your tax burden!


Last week I shared an article to help those considering working from home with that decision. Today, I’ll share the tax advantages of having a home office from where you work or run a business.

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Disclaimer: I am not an accountant or a financial advisor. This article is for general information only. Everyone’s tax situation is different. Please make an appointment with a tax professional to discuss your personal financial situation.

The Home Office Deduction

Any area of your home that you use regularly and exclusively for business qualifies as a “home office.” It doesn’t matter if you rent or own your home, the cost of maintaining that office may be deductible. Some costs that qualify for the deduction are utilities, property taxes, homeowners insurance, mortgage interest, and maintenance costs occurring throughout the year.

 

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How Do You Determine Those Costs?

Measure the square feet of the area of your home office. Figure the percentage of the square feet of the home office in the total square footage of your home. If your home office is 10% of your home’s square footage, you can deduct 10% of the items listed above as the cost of maintaining a home office. If the square footage of your home office is 15% of your home’s square footage, you can deduct 15% of the costs mentioned above.

 

The IRS says that the requirements for claiming a home office deduction are that the area is used regularly and exclusively for business. It also requires that the home office you’re claiming be your principal place of business.

Can I Claim a Home Office Deduction If I’m an Employee

Maybe, because whether you’re an entrepreneur or an employee, you’re incurring costs for your workspace. Talk with a tax professional about your situation.

What Are Other Small Business Expenses I Can Deduct?

A small home-based business run by an entrepreneur may qualify for many deductions. This is where an employee loses some of the tax benefits of working from home. A small business owner shoulders the cost of running a business. An employee usually does not.

Depending on the type of business you own, just about any expense related to that business can be a tax deduction. For example, if you drive anywhere for your business, those miles are considered a business expense. Loving the Home Life is a small publishing business. To run my small publishing business I need a computer, the right software, a tutorial to teach me how to blog, a printer, a planner to stay organized, etc. All of these things are considered business expenses and, in my case, a tax deduction.

Items Specific to Your Type of Business

Sometimes I lead in-person workshops teaching people how to create the things I write about here. I drive to those workshops. The miles driven are considered a business expense. I use the MileIQ app on my iPhone to keep track of my business miles. You get 40 drives per month free. I keep it free by only turning the app on when I’m driving for business. Check it out in the app store!

The materials needed for those workshops I teach? Items strictly for a workshop are a business expense.

As for my smartphone being a business expense, I’ll need to visit with my accountant. I’m pretty sure a percentage of my phone bill is deductible, but not all of it. My iPhone is my personal as well as business phone.

If you’re considering starting a home-based business, write down everything you’ll need to run that business. What office equipment do you need? What special items to run your business do you need? Do you need special training? All of these things, depending on your circumstances, can be a business expense and tax deduction.

Items for Blog Business

A blog is a great home business that offers numerous opportunities for business-related tax deductions.

DIY bloggers can expense the cost of materials to make the items they write about. Travel bloggers can deduct a large portion of their travel expenses if they’re working for themselves.

Food bloggers can claim the ingredients for a recipe as long as it’s used only for that recipe being published on the blog.

A good resource for learning about business expenses and tax deductions for bloggers is The Blogger’s Simple Guide to Taxes by Sarah Korhnak. Korhnak publishes a website called Small Business Sarah which is a great financial information resource for anyone looking to start a small business. I used The Blogger’s Simple Guide to Taxes when starting Loving the Home Life.

Be Careful About Municipal Zoning Laws

A home office used by one or two people in the home won’t run afoul commercial zoning ordinances. But if you’re considering a home-based business that requires an employee from outside your home to work in your home office you will want to check your city’s zoning laws. The same applies if your home-based business requires clients to meet you in your home office regularly. A home in a residential neighborhood cannot be used for commercial purposes.

Keeping Track of Your Home-Based Business Expenses for Tax Purposes

This isn’t as complicated as you might think. I just use Excel which comes with Microsoft Office on my laptop. Some people like Quickbooks.

A 3-ring binder with sleeves holds my business-related receipts, mileage reports (generated by the Mile IQ app on my phone), and income reports. I label each sleeve by month. All of that month’s paperwork goes into the corresponding sleeve to be given to my accountant at tax time.

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The Home Office: Make Money, Save Money

Home office and home-based business tax deductions are more complex than listed here. I can’t stress enough that you should consult an accountant about your situation and what benefits you can receive by working from a home office. Don’t just start a business and assume everything you spend on it is a tax deduction. Do your homework.

Click here to access the IRS Small Businesses and Self-Employed Tax Center. Here you will find multiple links to information regarding taxes and small businesses.

Perhaps 2019 is the year you strike out on your own! Whatever business venture you choose, I hope this guide is helpful in your decision-making process. 🙂

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