With rising numbers of home-based businesses in the US, the Small Business Administration (SBA) claims that over 50% of all businesses are based in American homes!. While this would mean that these businesses can claim a Home Office Deduction, most employers still see claiming these deductions as an auditing hassle. All it takes is a proper understanding of when it is appropriate to claim these deductions and it should be a breeze. With so many benefits to claiming it, what is stopping you? Here are some brief guidelines to consider before claiming your Home Office Deduction.
Home Office should certainly be an office
For someone looking to spruce up their home office, they could happily deduct their expenses incurred by opting for the home office itemized deduction if:
- their home office space was exclusively for work and used regularly
- space is the primary business location – this means meeting clients, customers, etc.
This means a space in your home dedicated solely to business with no inkling of a work from home convenience set up. The amount of deduction that can be availed was usually determined on either a pro-rate basis (or) by the use of a standard deduction rate. In the case of pro-rate deductions, the amount would simply be the office space to home space proportion of the total home office expense incurred i.e., if your office space was 100 sq. ft. and your home was 1000 sq. ft., then this would translate to 10% of home expense deduction. The alternative is the standard deduction of $5 per sq. ft., of the home used for business up to a limit of 300 sq. ft. With new reforms enforced from 2018 through to 2025, the pro-rate means of availing deductions are off the table. Find out more about the tax reform Tax law update for Individuals.
Do storage spaces also count?
Two situations that are exempt from the exclusive office usage space criteria at home are the use of space to run a Day Care or specific storage spaces. Yes. Storage spaces can be counted as Office space at home under certain circumstances that involve storing sample products or bulk inventory. Storing things irrelevant to you and the business itself like clientele files cannot be considered and will be struck down during claims.
Part-time workspaces and travel write-offs!
It is not necessary that your business needs to be full time to claim home office expenses. Even if you are a part-timer, as long as your office space at home is dedicated and in regular use and meets other write off criteria, one can claim deductions. Once your Home office space is set, with proper documentation, you could also write off your travel expenses to other business locations connected to your business.
Home Office deductions are a huge benefit for those who know when to claim them. So consult with your tax advisors or CPA now and claim what is yours!