Good news! If you are running a small business out of your home, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes. Our fellow direct sellers rejoice! Similar to vehicle expenses, there are two options to record and report their home office deduction – the regular method and a simplified option.
Under the regular method, business owners must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. You’ll need to calculate the square footage of the space in your home devoted to use for your business – it might be a room or a corner of the basement. While the regular method may result in a higher expense deduction, it comes with requirements that may prove to be a pain in the neck for some small business owners.
Enter the simplified method! This option can significantly reduce the burden of record keeping. It allows a qualified business owner to multiply a set rate by the allowable square footage of their home office instead of determining actual expenses. This simplified method of recording a home office deduction is relatively new. So if you’ve been in business for more than a few years take a peek at your tax forms to see if you could benefit from this method.
It is equally important to mention that despite a simplified method for recording, the requirements necessary to take a home office deduction have not relaxed one bit. Regardless of the method you choose, there are two steadfast requirements to taking the home office deduction – 1) regular and exclusive use; and 2) principal place of business. You can only claim a deduction if you regularly use that part of your home exclusively for business use. For example, if you use a corner of your bedroom, it won’t qualify for the deduction because the room is used for personal use as well. You also must show that you use your home as your principal place of business. Take the time to discuss the home office deduction with your tax preparer this year. Your business’s bottom line may thank you.