Tax Deductions for Your Home Office

Tax Deductions for Your Home Office

November 23, 2021

If you’re running your own business from home, you’re one of many Americans who may be eligible for a home office deduction. Some clients are concerned that they may get audited, while others are afraid they won’t qualify.

If you’re eligible to take the deduction, you should—otherwise, you may be overpaying your taxes. There may be other deductions available even if you can’t claim the home office deduction.

Why not take advantage of tax write-offs for working from home?

Home office deductions

Claiming a home office deduction can be complicated.

In order to take the home office deduction, you have to be self-employed. You cannot be an employee, even if you’re an employee of your own corporation. Therefore, if you’re reading about filing taxes for remote employees, keep in mind that you can’t claim a home office. However, if you have any self-employment income at all, such as freelance work, you may still be able to take the deduction.

If you want to claim the deduction, you also need a dedicated space for working from home. That means that if you sit on the couch in your living room to work, you’re not working in a space that’s regularly and exclusively used for business. Additionally, it has to be your main place of business. If you work from home normally but meet with clients and customers in another office or building you cannot claim the home office deduction.

The home office deduction is easier to calculate (and verify, in case of audit) if you have a dedicated room or specific space as an office. Even designating half a room as your home office is enough to satisfy the requirements.

What happens if you’re self-employed for part of the year?

In some situations, you might be eligible to claim a home office deduction for only part of the year, such as doing freelance work for a few months on the side. In that case, you can only claim those months in your deduction.

Calculating a home office deduction

There are two ways to calculate your deduction: standard or simplified. The standard deduction allows you to deduct 100 percent of some expenses (like paint and repairs) and a proportionate amount of house expenses. If your home office makes up 20 percent of your home, you can deduct 20 percent of things like rent, utilities, homeowners insurance and more. You may also deduct a portion of your home’s depreciation and property taxes.

The simplified option allows you to deduct $5 per square foot for up to 300 square feet and a maximum deduction of $1,500. While this is easier to calculate, you’ll likely get a smaller tax break than you would with the standard option; however, this can save you a lot of time on record keeping.

The easiest way to calculate a home office deduction and other tax write-offs for working from home is to work with a great accountant. Kedean’s Generation can help ensure that you get the maximum amount of deductions, credits and other tax incentives. Call us today to get started on your 2021 taxes.

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