Mind Your Business – The Home Office Deductions No One Ever Talks About
If you work from home, as a freelancer, or a small business owner, the government can subsidize your taxes on what they deem personal expenses.
Since covid, millions of Americans have been working from home and overlooking their expenses in their tax filings. Some people dismiss these deductions because they do not know about them or fear it will trigger an audit.
If you did not know, now you will because here are the home office deductions that no one ever talks about.
Before we delve into the overlooked deductibles, it is vital to clarify eligibility. The government provides deductions to self-employed folks or independent contractors who are not working for a company that gives them a standard W2 form.
You can be eligible for home office deductions if you regularly use any part of your living space or other separate parts of your property as the primary location to conduct business.
That means you are eligible if you use any part of your property in meeting customers, storing inventory, or as a workspace on a regular basis.
Per this rule, primary location applies to that business’s only physical site, even if you do not exclusively use it as an office. Also, according to the IRS, other housings like apartments, mobile homes, and boats qualify as your property and a home office.
Furthermore, while most employed persons cannot qualify for home office deductions, there is an exception. If you can prove that your employer, not for your convenience, mandates you to work from home, you are eligible for the deductions.
The IRS has a simplified method of calculating tax deductibles. This method allows taxpayers to write off $5 for every square foot of their home turned office, up to 300 square feet. However, turning a living space into a home office can be expensive.
Thankfully, you can write off up to 100% of your repair expenses in your tax returns. Direct expenses like these are deductible if you use them for your office and office alone.
Costs that qualify can range from hiring a painter to buying a computer and other office supplies as they are components of your business.
It is important to note that while these repairs are eligible, they must follow the depreciation laws. The depreciation law is a notion that everything, including a home, loses its value over time.
It would be best if you calculated the costs of repairs and renovations in accordance with this law.
To do that, you must first add the cost of improvement to the cost price of the home and then subtract the value of the land beneath the house.
Then you multiply the resulting number by the home office percentage and divide it by 39 since 39 years is the approved depreciation deduction rate for home offices.
Some expenses do not qualify as direct expenses but are still tax deductible. This category permits expenses such as mortgage interests, utilities, and maintenance.
You can calculate these deductions using a general method of multiplying expenses by home office percentage. If you use a certain percentage of your home as an office or workspace, the corresponding percentage of the home expenses qualifies as tax deductibles.
For instance, if you use 100 square feet of your 1000 square feet home as an office, you will be eligible to deduct 10% of your utility bills and other expenses from your tax returns as they qualify for office use.
This deduction must, however, not exceed the revenue generated from your home office business. Alarm system installation, real estate tax, electricity bills, and so on apply to this category.