Home office tax deduction for artists

Taxes are an inevitable part of every American’s life, however, there are some extra steps when you’re self-employed. As a freelance artist, you need to file both state and federal taxes, as well as 1099 forms.

Taxes can get burdensome, and freelancers often overpay their taxes. However, there are several tax deductions available for self-employed artists — painters, makeup artists, illustrators, DJs, Etsy sellers, graphic designers, animators, and more. Some of the categories you can deduct include travel, meals, inventory, vehicle and transportation costs, equipment, art supplies, home studio expenses, legal and professional fees, health insurance, gallery costs & commissions, and more.

The home office deduction is one of the most valuable deductions available to freelancers.

For example, you can claim the home office deduction if you use a spare bedroom as a studio space. You can also apply for it if you use the spare room as a storage space for your art materials, paintings, and canvases.

According to the IRS, you can claim your art studio as a deduction as long as it’s used exclusively for your art business, and you can prove that's where you do most of your work. The deduction amount relies heavily upon how much of the house is devoted to your artistic work.

Home office expenses you can deduct

The home office deduction offers you a tax write-off for bills such as mortgage interest, rent, utilities, real estate taxes, maintenance, and repairs. These deductions can prove to be very valuable, depending on how much you pay for housing.

Rent

A percentage of your monthly rent is tax-deductible for every month you claim a home office expense. So if you rent an apartment, and use a room exclusively and regularly for operating your business, then you can deduct a portion of your monthly rent and any other qualified home expenses.

Insurance

You can write off the cost of insurance (home/renter/property insurance) that covers the business part of your home. You can deduct a portion of your home mortgage interest as well as the real estate taxes

Utilities

Typically, basic utilities like electricity, gas, water and trash removal are personal expenses, but you can write off a portion of these costs if you have a home office.

Home essentials

Cleaning supplies, soap, toilet paper, and other necessities are partially tax-deductible. You can also deduct the cost of cleaning services from your taxes, this includes the fee you pay to home service workers.

Home office furniture

Any furniture that you bought for your workstation is fully tax-deductible since they’re used exclusively for business activities.

Wi-Fi bill

Internet connection is a must if you are working from home. Thus, you can claim your Wi-Fi expenses on your taxes!

Property taxes

Just like the mortgage interest write-off, you can also deduct a portion of your real estate taxes.

Telephone

Most freelancers generally operate their business through their smartphones and usually require a decent internet connection. So, you can claim costs you incur when you use your phone, data, or internet for work-related purposes and have records to support your claims.

If you happen to have a landline connection, a portion of it can be written off.

Home repairs and maintenance

Any sort of home office repairs can be written off. However, if you are renovating the home, then you’ll get a partial write-off.  Similarly, you can deduct your mortgage premiums if the mortgage was taken to build, buy or improve a qualified home.

Claiming the home office deduction

When it comes to claiming the deduction, the IRS offers two different methods, namely:

  • Regular Method
  • Simplified Method

The Regular Method requires you to calculate your actual home office expenses and keep detailed records in the event of an audit. For computing tax deductions using the Regular Method, tax cuts are calculated based on the percentage of the house devoted as an office space.

It is advantageous to have a rough idea of your workspace.

To figure out the allowable business percentage of your home area, you can-

  • Divide the area (length multiplied by the width) used for business by the total area of your home.
  • Divide the number of rooms used for business by the total number of rooms in your home.

In most cases, the area method works best, since most homes do not house rooms of the same size.

With accurate measurements, you may need to submit this particular information to substantiate your deduction, which uses the square footage of your workspace in its calculation. You can calculate the deduction using IRS form 8829.

On the other hand, the Simplified Method drastically reduces the burden of recordkeeping by allowing a qualified taxpayer to multiply an IRS prescribed rate by the allowable square footage of the office instead of determining actual expenses.

However, there are some limitations if you choose the simplified option-

  • Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).
  • You cannot deduct depreciation.
  • You cannot use the deduction to take a business loss.
  • Amount over gross income limitation cannot be carried over.

To sum up, your home office must not be larger than 300 square feet for you to qualify for the Simplified Method, and you cannot deduct depreciation or home-related itemized deductions.

So, if you have a small studio within your house, the simplified method might be a better choice for you.

Since tax laws can be complicated, a lot of taxpayers end up avoiding this deduction. Getting greedy with deduction numbers can also lead to an IRS audit. To avoid getting audited, freelance artists should carefully calculate their expenses and keep a record of all bills and receipts before claiming the tricky but extremely valuable home office deduction.

To calculate the accurate amount, you can use a tax engine like FlyFin. The app helps you perform calculations and make the right decisions for your home office. It is powered by A.I. and backed by CPAs who can help you determine which method works best for you.

Conclusion

For most freelancers, the home office deduction is extremely valuable although it is slightly complicated. The complexity of the deduction majorly depends on the method you choose. If the paperwork seems too burdensome, FlyFin can help you perform the calculations and make the right decision.

It is powered by A.I. that scans your expenses and automatically finds deductions. When it comes to any sort of complicated deductions such as the home office, the app allows you to consult an expert team of CPAs to help you determine if you qualify for further tax deductions.

Along with that, FlyFin provides an accurate Quarterly Tax Calculator for freelancers to calculate their quarterly taxes and ensure they file more efficiently to save time, and money.

FAQs

Q. Can the simplified method be used for one taxable year and the standard method be used in a later taxable year?
A.  Yes. You can elect to use either the simplified method or the standard method for any taxable year. However, once you have selected a method, you cannot later change to the other method for that same year.

Q. Can actual expenses related to the qualified business use of the home be deducted for a taxable year in which the simplified method is used?
A. No. You cannot use the simplified method for a taxable year and deduct actual expenses related to the qualified business use of the home. The amount allowed as a deduction when using the simplified method is in place of a deduction for your actual expenses.

Q. Can artists claim home office deduction if they use a spare room just for storing the paintings?
A. Yes, you can claim a home office deduction as long as you make sure to separate the business storage from your from the rest of your personal space and only deduct the business portion.

Q. What additional rules apply if you use the simplified method and have more than one qualified business use of the same home for a taxable year?
A. Your allowable square footage under the Simplified Method is limited to 300 square feet. You must allocate the set square footage among the qualified business uses using any reasonable method but, you cannot allocate extra square footage to qualified business use than you actually use in that qualified business use.