Do you use your home for your business? Do you want to claim the expenses associated with this business on your tax return? Like any corporation, you can claim a deduction for the use of space used for business, even if it’s in your home.
If you are a bookkeeper, hair stylist, graphic designer, massage therapist, virtual assistant, web designer, call center representative, blogger, personal chef, personal stylist, pet sitter, have an online store, run a daycare… you get the idea… this blog is for you.
To qualify for this business tax deduction, you must determine if the space used for your business meets IRS requirements. Those requirements include:
- The company must be legitimate;
- The space must be used as your principal place of business, like meeting clients or doing business paperwork; and
- The are must be used “regularly and exclusively” for business.
There are two methods to calculate your home business space deduction:
- The Simplified Method
This method is best if you use a space less than 300 square feet for your business. The deduction is a straight calculation where you multiply the square footage used for business by $5.
For example, if you use 250 feet regularly and exclusively to run a business from home, you multiply 250 feet by $5 to yield a deduction of $1,250.
- The Detailed Method
This method is required if you have a space larger than 300 square feet used for your business. The deduction is not a straight calculation like the Simplified Method. It allows you to itemize your costs by adding your direct and indirect expenses together.
Direct expenses are costs incurred specifically for your business at home. Examples include a phone landline used for business only, or new carpet installed for the business space only. These costs are added directly to the deduction.
Indirect expenses are costs incurred to run your home, like rent/mortgage interest, utilities, insurance, and general home repairs. To calculate these costs, you must first calculate the percentage of space used for your business. You calculate this by dividing the square footage used for business by the square footage of the home. For example, if you use 400 feet regularly and exclusively to run a business from your 2,000 square foot home, then your office space is 20% (400 ft / 2,000 ft) of your home. Next, you multiply the total of indirect expenses by the office space percentage. For example, if you have $800 in indirect expenses, then $160 would be added to the deduction.
Advertising, salaries, and supply expenses are not deductible as “business use of the home,” but they are deductible on Schedule C as part of your tax return. If you’re not sure if you can claim an expense for your business, always considering the following:
- Was the expense business-related?
- Was the expense required?
- Do you have proof of the expense you are claiming?
As always, you won’t be doing the math. We will provide the questions, you will submit your answers, and then our IRS-approved software does the calculations for you, just like in any tax preparation office. Our job is to provide you with the best technology available. Your job is to answer as accurately and honestly as possible.
If you have joined the rest of us in the 21st century, you no longer go to the video store to rent videos, you watch them on Netflix, rent them on iTunes or Amazon, or rent them through your cable provider. You also don’t go to a tax preparer to prepare your taxes. You do it yourself. Remember, if tax preparers can follow the software steps, so can you.