Home Office Tax Deduction for Self Employed (What’s Deductible?)

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Understand and learn how to calculate your home office tax deduction for self employed who work from home. Example calculations included.

home office tax deductions for self employed
Home office tax deductions for self-employed

You likely qualify for a home office tax deduction if you work from home as a 1099 contractor, freelancer, or are self-employed. This tax deduction is available to those that rent or own their home.

In this post learn more about home office deductions for self-employed and how to calculate them. Read on to learn if you qualify.

How do I qualify for a home office tax deduction?

According to the IRS, there are two requirements you need to meet for your home to qualify for a home office tax deduction. The two requirements are:

  1. You use the area in your home dedicated to your home office regularly and exclusively for your home office. For example, if you regularly use your a guest room in your home for your office. In addition, you exclusively use it for your office.
  2. Your home office is the principle place for your business. Thus, you likely qualify for the deduction if you do business at another location; yet, you use your home office substantially more.

Check out the following article for a detailed guide about all self-employed tax deductions, Self Employment Tax Deductions (Some Might Surprise You).


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How do I calculate my home office tax deduction?

There are two ways to calculate this deduction:

  1. Actual Expense Tax Deduction
    Also known as the ‘standard method’ or ‘regular method.
    This method is required for tax years 2012 and before.
  2. Simplified Method
    This method has been available since the tax year starting Jan 1st 2013.

Simplified Home Office Deduction vs Actual Expense Deduction

Once you’ve chosen a deduction method you cannot change it later for the same tax year. Therefore, please carefully read the following information below about the two home office deduction methods.

Actual Expense Tax Deduction (i.e. the Standard Method or Regular Method)

The actual expense deduction method for calculating your home office tax deduction is quite tedious. However, some prefer it. This method requires you to determine the actual amount of each home office expense. Home office expenses include

  • rent or mortgage
  • mortgage interest
  • insurance
  • utilities
  • repairs
  • depreciation
  • any other expenses incurred during the use of your home office

To calculate the amount of each expense item you use the percentage space used for your home office. For example, if 20 percent of your home is dedicated to your home office and the total amount of your utility expenses are $1000 dollars for the tax year; then the amount of your utilities portion of your home office expense is calculated as follows:

$1000 x 0.20 = $200 Home Office Expense

To use the Actual Expense Tax Deduction method to calculate, measure your home and your home office; then calculate what percentage of your home is your home office. Read on to learn about a more simplified method.

Simplified Home Office Tax Deduction

The simplified method makes it a lot easier to calculate your deduction. To use this method you multiply a prescribed rate by the allowable square footage of your home office. That means all you need to do is make one calculation to calculate your home office expense. With the regular method, you make an individual calculation for each home office expense item.

The standard deduction amount using the simplified home office tax deduction is $5 per square foot of the portion of your home used for business. The maximum amount of square feet you are allowed to use in this deduction is 300 square feet. For example, if your home office is 300 square feet, then your annual deduction is:

300 square feet x $5 per square foot = $1,500 USD

If your home office is 350 square feet your deduction would be the same amount, $1,500 USD. Three hundred square feet is the maximum amount allowed to calculate a deduction with the simplified method. Therefore, in this case, you don’t add the extra 50 square feet into your calculation using the simplified method.

Check out this article on the IRS website for more information on this method, Simplified Home Office Tax Deduction.

Note About 2017 / 2018 Tax Cut and Jobs Act

Self-employed individuals are discouraged to take the home office deduction because they don’t feel entitled to it and they think it triggers audits. Further, these feelings are particularly apparent since the 2017 / 2018 Tax Cut and Jobs Act. However, this is not true. Read below to find out why.

The 2017 Tax Cut and Jobs Act only applies to W2 employees. Self-employed individuals, freelancers, independent contracts, and 1099’s are not W2 employees. Therefore, you can take advantage of the deductions explained in this article.

Check out this detailed article for more information about the 2017 and 2018 Tax Cut and Jobs Act, 2018 Tax Cuts & Jobs Act Overview.

Frequently Asked Questions About Home Office Tax Deduction

If I rent my home and work from home, can I deduct part of my rent as my home office tax deduction?

Yes.
You can deduct part of your rent as you use only part of your home for work. Scroll up to see examples about how to do this.

If I sometimes work from home and sometimes work from an office, do I qualify for the home office deduction?

Yes.
You qualify if you work from your home office the majority of the time.

What if I received a 1099-NEC from my employers, do I still qualify for the deduction?

Yes.
Check out this article to learn about the differences between a 1099-MISC and a 1099-NEC, Form 1099-MISC vs Form 1099-NEC: How are the Different?

Resources

IRS: Small Business Self Employed Home Office Deduction

IRS: Simplified Options for Home Office Tax Deduction

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