7 Home Office Tax Deductions To Keep In Mind
By Davis Clarkson , December 15 2020
How much do you know about home office deductions or home office expenses? In 2017, over 5% of Americans worked from home. Fast forward 2 years and that number is surely higher. Are you working from home? Watch out for the home office deductions you could be eligible for. Working from home can have its perks, but it may be harder to handle your taxes.
While it can be difficult to keep track of every home office expense, you ought to know what can or can't be deducted, it's all worth it in the end when you owe less in taxes. To help you out, here are 7 home office tax deduction items that you need to remember come tax time.
You may think you need to own the property to be able to claim home office deductions, but that'd be wrong. In fact, you can be either a homeowner or a renter. In addition, the property can be of any sort, from an apartment or house to a studio, garage, or even barn space. So long as the property you're working in meets the "exclusive and regular use" requirements, then you'll be able to claim these home office expenses.
Be aware you can even claim a home office tax deduction for a home office even if you have a main location outside of your house. For instance, if you're a doctor and you have a medical practice, you can still claim home office tax deductions for your home office if you regularly see patients in your house.
Home Office Tax Deduction Methods
There are two ways you can claim home office deductions: there's the actual expense method and as of 2013, there's the simplified method. We'll explain each in detail below.
Actual Expense Method
This is where you can get some money back in the home office deductions for all the direct expenses you've spent, and a percentage back for indirect expenses. With this method, you'll have to gather up all the receipts and evidence of purchases and payments. This method is recommended if your home office takes up a large part of your property.
With the simplified method, you won't have to gather evidence to claim some money back for expenses. Instead, you'd claim a home office deduction of $5 per square foot, up to 300 square feet. This can be a much more efficient way to get tax deductions, especially if your home office is less than 300 square feet big. This method is recommended for people with single-room offices and small businesses.
Now that you know a little bit about the different ways to file for a home office tax deduction, here are some things you shouldn't forget to claim.
If you use a room in your house for business purposes, some of the utilities will go toward things like powering your laptop or charging your phone for business calls. Or if you're an artist, the water you need to rinse off your paintbrushes or to mix your paints with can be claimed as well. Think about all your home office expenses. Chances are, you can claim it as an expense when it comes to utilities.
2. Homeowners' Insurance
Many people don't know this, but you can claim a portion of your homeowners' insurance as a home office expense as well. Considering your home office is located inside your house, this makes a lot of sense. Since you're working in your house, why not convert some of your non-deductible personal expenses into business write-offs? This can reduce the amount of taxes you have to pay in the long run.
3. Homeowners' Association Fees
Claiming your homeowners' association fees as an expense follows the same concept as with your homeowners' insurance. This can be settled as a home office tax deduction. This would normally be a nondeductible personal expense, but since you're working in a home office, it can be turned into a legitimate business write-off and a home office expense.
If you don't own your house or apartment, don't worry. You can still deduct part of your rent from your business expenses and keep more of your self-employed income. As this is an indirect expense, you'd deduct the percentage of the rent that's proportionate to how big your home office is in relation to the entire property. For instance, if your home office takes up 20% of the house you're renting, then you deduct 20% of your rent.
5. General Repairs and Maintenance
Have you had to have the heater repaired recently? Gotten a fresh coat of paint on your house's exterior? Or maybe you've had a roofer come do a yearly inspection. If you've had any general repairs or maintenance done on your property, you can claim it as a home office tax deduction. Since your house needs to be in acceptable condition for you to conduct business in it, this makes any repairs and maintenance reasonable as a home office tax deduction or business write-offs.
Nowadays, most people communicate with one another through email or online chat methods. However, there are still some cases where you have to get on the phone. If you have clients in other countries, then this can be quite expensive to handle. You can deduct calls from your business expenses. Even if they're local calls, you can claim them as home office tax deductions.
7. Special Phone Line
Continuing on from point #6, you can also claim your special business phone line as an expense. Do note that while you can claim this as a business expense, unfortunately, you won't be able to claim your first (personal) phone line as a write-off.
Make Sure You Remember These Home Office Deductions
For the upcoming years, make sure you remember these home office tax deductions. Working from home can already have its own set of challenges, so make it easier on yourself by taking some of the financial burdens off your shoulders. With our list of need-to-remember home office expenses, you're sure to see more money in your pocket.
Want to get started on organizing your tax information and documents? Then pick a paystub template and generate your pay stub with check stub maker today!