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How to deduct expenses for your home office.
This is available renters and homeowners.
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This is available renters and homeowners.
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First, you do not need a business entity (LLC, Corp, etc) to take deductions for your home office. You just have to be engaged in a profit seeking activity.
If you have a business - even a small side hustle - you just need to meet the following two requirements:
If you have a business - even a small side hustle - you just need to meet the following two requirements:
A space in your home should be used as:
1. The principal place of your business.
2. Have regular and exclusive use for your business.
1. The principal place of your business.
2. Have regular and exclusive use for your business.
Principal place of business test.
• You use it exclusively and regularly for administrative or
management activities of your trade or business.
• You have no other fixed location.
If this is your only real property workspace, you should be good on this test.
• You use it exclusively and regularly for administrative or
management activities of your trade or business.
• You have no other fixed location.
If this is your only real property workspace, you should be good on this test.
Exclusive use test.
The space needs to be identifiable and not used for personal use. A nice exception to exclusive use is if you are storing inventory in your home.
Examples:
The space needs to be identifiable and not used for personal use. A nice exception to exclusive use is if you are storing inventory in your home.
Examples:
Not exclusive use:
-You lay on your couch with your laptop.
-You work at your kitchen table.
These are largely personal use spaces you are just doing business in.
-You lay on your couch with your laptop.
-You work at your kitchen table.
These are largely personal use spaces you are just doing business in.
Should qualify as exclusive use:
-A room in your house that is a devoted office.
-A identifiable corner of a room that is used exclusively for work/business.
-A room/closet/storage area that your regularly store your flipping inventory.
-A room in your house that is a devoted office.
-A identifiable corner of a room that is used exclusively for work/business.
-A room/closet/storage area that your regularly store your flipping inventory.
Which expenses to deduct...
There are two methods you can use to calculate the deduction:
1) The Simplified Option - Deduct $5/square foot of home use (can be up to 300 square feet - whatever you are using).
This is incredible easy and does not require expense tracking.
There are two methods you can use to calculate the deduction:
1) The Simplified Option - Deduct $5/square foot of home use (can be up to 300 square feet - whatever you are using).
This is incredible easy and does not require expense tracking.
2) The Regular Option - Track all of your home expenses and allocate a % of them.
For example mortgage interest, insurance, utilities, repairs, and depreciation.
Add those up and if you are using 5% of your house for your business, then you can deduct 5% of those costs here.
For example mortgage interest, insurance, utilities, repairs, and depreciation.
Add those up and if you are using 5% of your house for your business, then you can deduct 5% of those costs here.
Note if you are already deducting some of these costs as an personal itemized deduction, you cannot double dip.
You might be better off with the Simplified Method.
You might be better off with the Simplified Method.
What if I rent my house/don't own?
You can apply a % of your monthly rent, insurance, utilities, etc to your business.
Simply add up all of your costs of renting and apply a % of how much exclusive business space you have in your rental and deduct.
You can apply a % of your monthly rent, insurance, utilities, etc to your business.
Simply add up all of your costs of renting and apply a % of how much exclusive business space you have in your rental and deduct.
As as renter, you should also be able to use the Simplified Method described above, i.e., deduct $5/square foot of exclusive use space in the property you are renting.
How is the deduction taken?
Once you find you qualify and calculate it, it will be filed on Form 8829. Don't worry about this though - you tax preparer will take care of it or your tax software will automatically lead you there.
Once you find you qualify and calculate it, it will be filed on Form 8829. Don't worry about this though - you tax preparer will take care of it or your tax software will automatically lead you there.
Please save yourself some tax by properly deducting home office expenses that you qualify for.
DM me with questions and consult your paid tax preparer for confirmation on your own situation.
DM me with questions and consult your paid tax preparer for confirmation on your own situation.
