Most small business owners working out of their home knows they can write off expenses for their home office. Still, not all that many of them do, and they might not know how it all works. We’re going to offer a few bits of information that might help you save money on your taxes.
The first thing you should know if that you have write offs based on the dimensions of your office. If your office is 10×10 as an example, you get to write of $5 per square foot, which in this case comes to $500. There’s a maximum level of 300 square feet, or $1,500. This is called the “simplified method”. A more technical method involved figuring out the percentage of your house you’re using for work, such as if you’re running a day care out of your home or you have a studio where you work on projects that you want to claim. If you have extra complications like that it’s easier to work with an accountant to help you figure it out properly.
The qualifications for doing this is that you do a substantial amount of work from your home office, but it’s rare that anyone will check to see how much work you’re doing from your home. It’s supposed to only be used for business, but the definitions would be hard to prove either way. For instance, if you allow your children to use your office to do their homework it’s technically not allowed. If you use the room for other purposes, such as a laundry room (although no one would do this; just an example) then technically you’re not allowed to claim the deduction unless you have some kind of defined border showing which part is office and which part is home use.
By the way, if you’re an employee who works from home, you get to use this deduction as well. The same space rules apple as above. Strangely enough, you also get to write off expenses as it applies to your mortgage or if you rent an apartment.
Did you know if you decided to paint your office or change the flooring exclusively in there, you get to write off some of the expenses for this (you get to write off painting in full). Also, if you have a dedicated phone line for your business that counts as a write off.
If you have to store any type of inventory in your home and that room is used exclusively for that purpose you get to write that off. However, you can also write off some expenses if you use a portion of a room like a basement, as long as your home is the only location of your business.
There are a lot more exemptions you might qualify for, but truthfully it’s probably best to talk to a tax professional or your accountant to help you calculate these things and keep yourself from going crazy trying to figure it all out.
