There are lots of great reasons to be self-employed and work from home. The obvious benefits are:
- Flexibility
- Save gas
- No traffic
- More productive
- Less stress
- Freedom
- Calling your own hours day or night
- Family
- Being your own boss
- Hanging with your animals
Plus, there is a bonus of being able to have tax benefits on top of the other ones listed.
Home Office Tax Deduction
Investopedia.com states that “the home office deduction is one of the more complex deductions. In short, the cost of any workspace that you use regularly and exclusively for your business, regardless of whether you rent or own it, can be deducted as a home office expense. You are basically on the honor system, but you should be prepared to defend your deduction in the event of an IRS audit. One way to do this is to prepare a diagram of your workspace, with accurate measurements, in case you are required to submit this information to substantiate your deduction, which uses the square feet of your workspace in its calculation.
In addition to the office space itself, the expenses you can deduct for your home office include the business percentage of deductible mortgage interest, home depreciation, property taxes, utilities, homeowners insurance and home maintenance that you pay during the year. If your home office occupies 15% of your home, for example, then 15% of your annual electricity bill becomes tax deductible. Some of these deductions, such as mortgage interest and home depreciation, apply only to those who own rather than rent their home office space.
You have two choices for calculating your home office deduction: the standard method and the simplified option, and you don’t have to use the same method every year. The standard method requires you to calculate your actual home office expenses. The simplified option lets you multiply an IRS-determined rate by your home office square footage. To use the simplified option, your home office must not be larger than 300 square feet, and you cannot deduct depreciation or home-related itemized deductions.
The simplified option might be a clear choice if you’re pressed for time or can’t pull together good records of your deductible home office expenses. However, because the simplified option is calculated as $5 per square foot, with a maximum of 300 square feet, the most you’ll be able to deduct is $1,500. If you want to make sure you’re claiming the largest home office deduction you’re entitled to, you’ll want to calculate the deduction using both the regular and simplified methods. If you choose the standard method, calculate the deduction using IRS form 8829, Expenses for Business Use of Your Home”.
Other tax deductions
Ask your CPA about these other deductions that are available to write off as well:
- Self-Employment Tax
- Internet and Phone Bills
- Health Insurance Premiums
- Meals
- Travel
- Vehicle Use
- Interest
- Publications and Subscriptions
- Education
- Business Insurance
- Start-Up Costs
- Advertising
- Self-Employed Retirement Plan Contributions
IRS Audit
Some people think that taking your home office deduction is a red flag for an IRS audit. It is not and you have every right to take this legitimate deduction while working at home.
Timeframe
Each year you will need to qualify for the deduction to take this tax benefit of being self-employed and working from home.
Business type
Depending on your business type, deducting a home office is treated differently. Ask your CPA about the differences.
2018 Income Tax Organizer
If you are interested in receiving this complimentary 2018 Income Tax Organizer for your use, just email josh@joshuawilsoncpa.com and put in the subject line “Send a 2018 Income Tax Organizer” and our office will send you a pdf to start getting prepared for your taxes.
Joshua Wilson, CPA, PC is a full-service public accounting firm that specializes in accounting, tax preparation, tax planning, & business development for small businesses in Winder, GA and the surrounding areas. Give Joshua a call today to set up a consultation at 770-856-1309 or email him at josh@joshuawilsoncpa.com.