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Your guide to the home office tax deduction
Your guide to the home office tax deduction
Did you know that the IRS lets you claim your home office and certain related expenses as tax write-offs if you’re self-employed? So if you spent way too much money on a standing desk and are now beginning to slightly regret it, this is your chance.
A self-employed income tax calculator can be useful to check whether you can claim this deduction. For example, if you’re a W-2 employee working remotely, you used to be able to deduct expenses that weren’t reimbursed by your employer, but you no longer can, thanks to the 2017 Tax Cuts and Jobs Act.
To calculate your home office tax deduction, you can either calculate your business use percentage of the space you’re working in or take the easy way out and use the simplified method, which is based on the square footage of your office space.
Key takeaways:
- The home office tax deduction is only for self-employed individuals
- You can use the simplified method or the regular method to claim the deduction
- You will calculate this deduction on Form 8829
Table of contents
What are the rules for the home office deduction?
Like we said before, there are certain conditions to you have to meet for the home office deduction. The first one is a no-brainer – you have to use your home office as the main location of your business. So, even if your job takes you out of the house frequently, you can still claim the deduction as long as you’re using it to have meetings and catch up on admin work.
The second condition is a little more tricky. Your home office has to be an area that you use exclusively to work in. It doesn't matter if this a separate room in your house, a desk in your kitchen or one half of your dining table, you must exclusively use it for business reasons.
So, if you eat breakfast on one half of your dining table and move to the other half when it’s time to work, you can still claim the deduction. But there are two main exceptions. If you work as a care provider, you will use a part of your house for both work and personal reasons.
In that case, you can still claim the home office tax deduction if you operate between 7 a.m. and 6 p.m. everyday and have the state-required legal license to run your business. Another exception is for small business owners who also use their homes as product storage space .
If you use part of your house for inventory storage, you can write that off on your taxes. However, you still need to mainly conduct your business activities from your home and use your storage space regularly.
How to calculate the tax deduction for home office?
As a self-employed individual, you are required to pay 1099 tax on any income you earn if it exceeds $400 a year. As the American tax system works on a “pay as you go” basis, this tax payment might be split over four quarters if you think you’ll owe the IRS over $1,000.
You can use a quarterly tax payment calculator to check whether you’ll need to make estimated quarterly payments. But sometimes, deadlines are forgotten or you’re just not able to get the money together. So with the help of a tax penalty calculator, you can calculate your tax penalties and get back on track.
Now, to calculate the home office tax deduction, the IRS gives you two options. The first option is the newer, simplified method that requires minimal calculation. To claim this, you just need to total the square footage of your home office and multiply it by $5.
So, a 170 square feet square home office gets a $850 deduction. However, a big office doesn’t necessarily mean a bigger deduction. The IRS caps the claim at 300 square feet or $1,500. If you’re using this method, you can just report the deduction on Schedule C (part of Form 1040).
The other option is the standard home office deduction which involves a lot more calculations. You’ll first need to total all your home office expenses and multiply it by your business use percentage.
If your home office is 100 square feet, and you live in an apartment that is 1,500 square feet, that’s an approximate business use percentage of 6.67% (100/1,500 x 100). You can then deduct the business-related portion of other expenses related to your office like mortgage interest, utilities and furniture.
If you link your expenses to an app like FlyFin, you can let A.I. do all the work and find every home office tax deduction you can use to lower your tax bill. You can also reach out to the team of CPAs who are experts in 1099 taxes available 24/7 on the app. They can even prepare and file your tax returns for you.
How to claim the home deduction in 2023?
If you choose the standard method, you’ll need to fill out Form 8829, also known as “Expenses for Business Use of Your Home.” In this form, you’ll enter your business use percentage and all your office-related expenses to calculate your deduction.
You might notice that the form asks you to enter both “direct” and “indirect” expenses. Direct expenses are expenses like buying a printer that are exclusively related to the working of your home office. Indirect expenses are things like rent and utilities that you only deduct a portion of since it is an expense for the entire house, not just your home office.
A lot of self-employed individuals are hesitant to claim the home office deduction out of a fear of being audited by the IRS. But as long as you keep good records of your office space and have the bank statements to back it up, you should absolutely take advantage of this deduction and continue to use that standing desk guilt-free.
What’s FlyFin?
FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. It offers a host of cutting-edge tax tools that help you quickly find deductions. You can also use tools like a home office deduction calculator.
FlyFin uses an A.I. to track all your business expenses automatically and find every possible tax deduction.
Once you have all your possible deductions in one place, our CPA team files a guaranteed 100% accurate tax return for you. It saves you a couple of thousand dollars and a ton of time on your taxes.
Download the app and have your taxes filed in minutes, saving time and more money on your taxes than last year, guaranteed.
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