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Simplified home office deduction

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Taking the Simplified Home Office Tax Deduction in 2022

The pandemic caused millions of people to work from home, but long before the lockdown, there were many professionals who had been working from home, including self-employed individuals, freelancers and independent contractors, also known as 1099 employees. Unlike full-time W-2 employees, whose employers automatically deduct taxes from their wages, these self-employed individuals are responsible for their own taxes. When you're self-employed, you're in charge of finding work, setting up income streams from multiple sources, working on daily tasks and doing your federal income taxes on your own. Working as a self-employed individual comes with a lot of work-related expenses, and you can mark many of these as write-offs from your taxable income. The home office deduction is one of the write-offs that can lower your taxable income the most. Key highlights:
  • There are two different methods of calculating the home office deduction.
  • The simplified method is based on the square footage you use for your office.
  • The actual expense method factors in square footage and other home office expenses.

Table of contents

Who's eligible for a home office tax deduction in 2022?...Read more

How to calculate your home office deduction?...Read more

Different methods to calculate home office deductions...Read more

What's the regular method of calculating home office deductions?...Read more

The simplified method for calculating the home office deduction...Read more

Who's eligible for a home office tax deduction in 2022?

Any self-employed individual is eligible for the deduction if they use a part of their home as office space. According to the Internal Revenue Service (IRS), a self-employed person can have multiple business ventures but can only use one home office space to do the work. This means that you can be a freelance social media marketer and a cake maker, but the area you use for work needs to be in the same building. Or, if you are a dentist and you run a clinic from your home, you probably have a waiting area and a separate place to see your patients in the same building. If the waiting area is adjacent to your home, you won't be able to claim the expenses related to that area as a home office deduction in 2022. You also can't use your home office for anything other than the trade or businesses that you have already declared with the IRS.
Who's eligible for a home office tax deduction in 2022?

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How to calculate your home office deduction?

The most important thing to know about the home office deduction is the square footage of the area you use for work in your home. This can be a home you own or rent. To find your home office deductions for 2022, you can use a home office deduction calculator. But first, you'll have to know how to qualify for home office deductions. Let's say that you own a home and use 20% of the area for your office work. Your qualifying expenses for home office deduction will be proportional to the home office area. In a rented apartment, the amount of rent you pay becomes part of the equation. Let’s say you use 15% of an area as a home office in a rented apartment. You pay $1,100 in rent and $290 for utilities, which makes your monthly home expense $1,400. At 15% percent usage, you can claim $210 each month for a total of $2,520 for the year.
How to calculate your home office deduction?

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Different methods to calculate home office deductions

The two different methods to calculate your home office deduction 2022 are the actual expenses method and the simplified deduction method. If you choose the actual expense method, you’ll need to consider the exact square footage used for your business in the home office. With the standard simplified method, you can only claim a home office deduction on pre-set square footage limits.

Quick tip

If you have a home office area of more than 300 square feet, it’s best to check in with a CPA whether the regular method can get you a bigger deduction.

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What's the regular method of calculating home office deductions?

This method includes your actual home office expenses. If you choose this option, you'll need to consider all your home expenses like electricity, water and internet bills, and any expenses from home repairs. You'll then have to find the percentage of space you use for your home office and multiply that number by the total amount of expenses related to your home. Let's say your utility bills and repairs cost $5,600 for the year, and 40% of your home's space is your office. Your home office expenses by percentage would be $2,240. This method is the right choice when you think your expenses will exceed the amount offered in the standard home office simplified method.

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The simplified method for calculating the home office deduction

The home office simplified tax method, also known as the standard home office deduction, is a standard rate set by the IRS. You still have to calculate the home office's square footage, but you can't factor in your utility bills or home office repairs, which makes the home office simplified deduction less flexible. But the deduction amount may be bigger this way. It all depends on your specific situation. The IRS set the standard deduction amount for every square foot of home office space to $5 in 2022. The limit that the IRS places on the number of square feet that can be claimed as space for the home office simplified method is 300. This makes $1,500 the max for a home office tax deduction in 2022.
The simplified method for calculating the home office deduction
If you choose the actual home office deduction method for a 250-square-foot office in your 1,000-square-foot house, you can deduct 24% of your home office expenses from your taxes. If your home expenses total $4,200 for the year, including utility bills and routine maintenance, you can deduct 25% of them, or $1,050. If you use the simplified tax method, you'll have to multiply the square footage used for the office by $5, which brings your total home office deduction to $1,250. Clearly, the simplified method saves you more. The rates for the simplified home office deduction 2021 are the same for the 2022 tax year.

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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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