The Home Office Deduction
Updated: Apr 1, 2021
Claiming the home office deduction is an important part of your tax strategy as a small business owner or if you are self-employed. If you use part of your home, exclusively and regularly for business, you may be able to deduct expenses for the business use of your home. This deduction applies to homeowners and renters, and applies to all types of homes. For tax year 2020, who didn’t work from home?!
Disclosure: if you are an employee and receive a paycheck or a W-2 exclusively from an employer, you are not eligible for the deduction. Even if you are currently forced to work from home. Are you even surprised?! To claim this in the future, you must have self-employment income to benefit. Need help starting your business? Reach out and let us know!
There are two ways to calculate your home office deduction. The “Simplified Option” and the “Regular Method”.
The “Simplified Option” is exactly that. Simple. You simply indicate the total square footage of your home, the square footage of your office space exclusively used for business.
That’s twice now I’ve used exclusively. And it’s not even to sound smart! You must have a designated space in your home that is used exclusively for business. Now I know this is hard with the sudden thrust to WFH (“working from home”, mother), but you cannot claim this deduction if you were forced to work out of your kitchen or on your couch.
This deduction is claimed on line 3 of your Schedule C. The simplified option allows a standard deduction of $5/square foot of your office space. There is a maximum square footage of 300 square feet, which is essentially the size of a two-car garage, so don’t go too crazy.
The “Regular Method” bases your home office deduction on the actual expenses of your home office.
Allowable home-related expenses to use in this calculation are mortgage interest, insurance, utilities, repairs, and depreciation.
The same rule applies with the regular method that the deduction is based on the square footage of your home used exclusively for business. For this method, you take it one step further and calculate the percentage of your home devoted to business activities.
Sometimes math is hard. To calculate the percentage of your home devoted to business, enter *square footage of your office* divided by *total square footage of your home*
If you have any questions at all, email us and let us know.