Tips for claiming the Home Office Deduction

If you conduct business either partially or in whole at home, you may be entitled to a home office deduction on your taxes. Here are a few things you should know about the home office deduction.

First, the portion of your home you are claiming the deduction must be used regularly and exclusively for business purposes. This area of your home must also be your principal place of business, or a place where you meet clients or customers in the normal course of business. It also applies if the space is a separate structure not attached to your home, like a garage or studio.

You have a couple of different options on how you can claim the deduction. The simplified option allows you to multiply the square footage of your office by rate of $5, up to a maximum of 300 square feet. This simplifies the recordkeeping requirements, but you may actually get a higher deduction with the regular method.

Using the regular method, you track certain costs that you pay for your home throughout the year, including rent or mortgage interest, taxes, utilities, and other expenses. The amount you deduct from these expenses depends on the percentage of your home used for business. If you are self-employed, you can calculate these expenses on Form 8829, Expenses for Business Use of Your Home. The result of this worksheet is transferred to Schedule C, Profit or Loss From Business.

The home office deduction also applies to employees under certain circumstances. For example, if you're claiming business use of the home, it must also be for the "convenience of your employer". Employees who qualify can claim the deduction on Schedule A, Itemized Deductions.

Home daycares have additional and unique circumstances for a home office. They do not have to have exclusive use, and instead use a “time-space percentage” to determine the business portion of their home expenses.

Home-office deductions are often overlooked, but can be a great way to save you a few dollars on your taxes. The tax preparers at All About Numbers can help you calculate these costs and determine if you qualify. We also have worksheets available here on our website to help you compile the information needed for home office deduction, and determining the time-space percentage for daycare.