I haven’t always worked in an office. When I first started my business, I worked from home for a while. Working from home can offer the best of both worlds; there is no commute, you save on renting office space and you can even work in your pajamas.
Having a home office can also be deducted from your taxes every year. So many of my clients, though, have a hard time figuring out if they can make a deduction and how much.
Starting this year, the IRS has an easier formula for figuring out a home office deduction. Here are some things you need to know to help you calculate and deduct your home office:
EXCLUSIVE OR REGULAR USE – You can claim your home on your taxes only if you either use it as your principal place of business or invite clients or customers to meet at your home in the normal course of your business.
SIMPLIFIED FORMULA vs. EXPENSE METHOD – Next year on your 2013 return, you will have an option to calculate your deduction based on actual expenses or you can choose the new formula of multiplying the square footage of your home office by $5 per square foot. The simplified method means the most you can deduct using the new method is $1,500 per year. Ask your tax preparer or accountant which method is better for your business because once you choose one, you cannot change it in the same year.
HOME OFFICE DEPRECIATION – If you use the simplified formula this year and own your home, you won’t be able to depreciate your home office. You can however, claim itemized deductions such as real estate taxes and qualified home expenses. It’s best to double check this with your accountant or tax preparer, or give us a call.
BUSINESS EXPENSE DEDUCTION – You can fully deduct any business expenses that have nothing to do with your home if you use the simplified formula. These include costs such as advertising, office supplies and employee salaries.
MORE THAN ONE HOME – If you used more than one home office in the same year, you can actually deduct both by using the simplified formula for one and the actual expenses for the other during the same year.
Working from home does have quite a few benefits; don’t file this year without taking your home office deduction. Please feel free to e-mail or call me if you have any questions about home office deductions or which method you should use to calculate your taxes.
Happy calculating!
