Claim your home office as a business expense: The home office deduction

  Tax season is upon us. That nervous sense of dread is pitting in your stomach; Lady Liberty is waving signs that say “Tax Special” on street corners; Turbo Tax is stocked, it seems, in every store.  And if you are like most business owners, you are scrambling for any missed tax deductions. There is one very helpful deduction that we at Sweeten CPA are always sure our clients who can take it do take it! It’s the home office deduction. (Another deduction we always recommend our clients to take when possible is the business mileage deduction. Read more about that by clicking here.)

So let’s get right to it.

Q: Do I qualify?

A: Wow, thank you IRS for this amazing decision chart to help answer that question. A picture is worth a thousand words (literally in this case). (Click on the image to make it more readable.)

Q: How do I take the home office deduction?

A: Unless you enjoy boring math, leave it to us accountants to figure it out exactly. I will still give the general rule and then tell you what information to get together. A proportionate amount of your (allowable) home’s bills are deductible. That proportion is the same proportion of your home office’s square footage to your house’s total square footage. Already lost/bored? Just collect for your accountant the following data for the year:

  1. Home office and corresponding closet/storage square footage
  2. Total home square footage
  3. Real estate taxes
  4. Qualified mortgage insurance premiums
  5. Deductible mortgage interest
  6. Home purchase price, improvement costs, year started using home office (all these will be needed for your accountant to figure depreciation)
  7. Insurance
  8. Rent (if you don’t own)
  9. Repairs
  10. Security system, pest control
  11. Utilities
  12. HOAs

This list may not have everything, but you get the idea. If you want to read more (and I mean LOTS more), read the IRS publication 587 on Business Use of Home.