Home Office Tax Deduction for Self Employed (What Can You Deduct?)

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

Do you work from home? Learn how to calculate your tax deduction for using your home as your office.
Read below for details and example calculations.

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 the home office tax deduction for self employed and how to calculate it. 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 that must be met 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; then you can take the home office tax deduction.
  2. Your home office is the principle place for your business. You possibly qualify for the self employed home office tax 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 tax deductions available to you if you’re self employed, Self Employment Tax Deductions (Some Might Surprise You).

How to Calculate Your Home Office Tax Deduction

There are two ways to calculate the amount of your home office tax deduction.

  1. Actual Expense Tax Deduction (i.e. that Standard Method or Regular Method)
    Note: 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 Tax Deduction vs Actual Expense Tax Deduction

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

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

The actual expense tax 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 of your 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 utilities expenses are $1000 dollars for the tax year; then the amount of your utilities portion of your home office expense would be calculated as follows:

$1000 x 0.20 = $200 Home Office Expense (i.e. Home Office Tax Deduction)

To use the Actual Expense Tax Deduction method to calculate your home office tax deduction, 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 way to calculate your home office tax deduction.

Simplified Home Office Tax Deduction

The simplified method makes it a lot easier to calculate your home office tax 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 amount 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, than your annual home office tax deduction will be:

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

If your home office is 350 square feet your home office tax deduction would be the same amount, $1,500 USD. This is because the maximum amount of square feet you’re allowed to use to calculate your home office tax deduction with the simplified option is 300. 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 this method, Simplified Home Office Tax Deduction.

A Note About the 2017 / 2018 Tax Cut and Jobs Act

Self employed individuals are discouraged to take the home office tax deduction because they don’t feel entitled to it and they think it will trigger an audit. 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. The home office tax deduction is available to you if you are one of these.

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 a self employed home office tax deduction if you use only part of your home for work.

If I sometimes work from home and sometimes work from an office, do I qualify for the home office tax deduction?
Yes. You qualify for the home office tax deduction if you work from your home office a majority of the time.

Resources

IRS: Small Business Self Employed Home Office Deduction

IRS: Simplified Options for Home Office Tax Deduction

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