The home office tax deduction can often be a big benefit for those who work from home, such as the self-employed and small business owner. Knowing how to claim this deduction without raising the eye of the IRS can sometimes be a difficult thing.
If you work from home, you’ve probably considered claiming your home office as a deduction on your tax return. However, you should know there are a few important things to be aware of.
Tread Lightly
This is not a deduction that should be claimed because you use your office occasionally from home. Too often, taxpayers who claim this credit do so without making sure they meet all the criteria and are safe should their situation be audited. If you have questions about whether your situation meets this credit, consider consulting a tax professional.
Exclusive Use
The exclusive-use case for this deduction means that you must use this space 100% for business-related activities only. If you have a room or area that you use exclusively for work, then that space is deductible. However, if the space is shared, or used for other things than business-use, it is NOT deductible.
Frequent Use
The regular-use case for the deduction says that the space must be used regularly for your business-related activities. While there’s no specific limit, a general rule of thumb is that you should use this space regularly, and daily. Otherwise, if the room is used sporadically, you may be best not to claim the deduction.
Claiming the Deduction
There are two ways to claim the Home Office deduction: the Simplified method and the Standard method.
- Simplified Method - for the deduction amount is based on $5 per square foot, up to 300 square feet. Calculate what space in your house is used exclusively for your business and use the formula to calculate the deduction amount.
- Standard Method – Often called the percentage method, this option requires finding the percentage of your home used as a home office, and applying that percentage to your mortgage or rental costs. Using the standard method, you’ll need to use Form 8829.
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