Have you recently started your own home-based business or transitioned to primarily working from home? The home office deduction for small business owners may be something you qualify for!
What to know
Taxpayers who use part of their home or a separate structure on their property as their primary place of business may qualify for the home office deduction for small business owners.
For the record, “home” in this case applies to a house, condo, apartment, mobile home, houseboat or similar dwellings. The home office deduction for small business owners is also available to both homeowners and renters.
Next, determine eligibility by seeing if you meet the two basic requirements. First, you must use a designated area of your home for regular or exclusive business use.
To clarify, you can’t claim the home office deduction if you bring work home from the office and complete it in the family den.
The space is not used exclusively, or regularly, for business purposes only. The family also uses the den for recreational activities.
This brings us back to the other basic requirement. Secondly, the space must be the principal place of your business.
However, it doesn’t necessarily have to be the only place you conduct business.
For example, you may have an office away from home. But if you still meet with clients or customers and conduct regular business from a specific area of your home, you may be able to deduct a portion of expenses.
Methods to calculate
There are two basic methods used to calculate the home office deduction for small business owners. For starters, there is the simplified option.
This option significantly reduces the burden of recordkeeping. It allows qualified taxpayers to multiply a specified rate by the square-footage of your home office.
In this case, the designated rate is $5 per square foot. The maximum amount of square footage you can claim with the simplified option is 300.
Another way to determine eligible expenses is to use the regular method. With this method, taxpayers figure out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses with proper records may be deducted in full.
Now that we shared the basic requirements of eligibility and methods of calculating deductions, are you asking yourself if it applies to you? A good way to find out if this applies to you is to schedule a free consultation with us. A good way to find more financial news, tax guidance and more is by reading our other blogs!