deducting startup costs

Does Your Business Qualify for the Home Office Deduction?

There are multiple factors involved when determining how to deduct an entire room or part of a room as your home office. Read this advice to learn more about a home office deduction.

Does your office space qualify for a home office deduction?

Working from home has become a practice of choice for entrepreneurs and small business owners across all fields. Thanks in large part to advances in technology, more self-employed professionals are discovering the great perks of using a home office to conduct their trade instead of finding outside office space or a brick-and-mortar location. In addition to this work-from-home convenience, the home office deduction is a fantastic way to reduce your IRS tax bill as a business owner. So do you qualify for this write-off? Let’s explore it.

Entrepreneurs who use a home office often have the ability to deduct expenses incurred when working from home. IRS rules state that a home office must be utilized for business-related activities. Yes, the word “home” is included in this term, but those working out of a studio apartment or a mobile home are eligible for it. In other words, the office doesn’t have to be set up in a 3-story, $2-million mansion to claim this deduction. Therefore, both homeowners and renters can take advantage of it.

In general, the specific dollar amount you can deduct using the home office deduction depends on the percentage of a residence that you use for work purposes. Keep in mind that if the gross income generated by your business happens to fall below your total business expenses, the amount you can write off will be limited. Deductible home office expenses you can claim include rent, insurance, electricity, mortgage interest, depreciation, home repairs, and an Internet connection.

There are multiple factors involved when determining how to deduct an entire room or part of a room as your home office. Remember that this office space should be considered your primary place of conducting your trade or a space you use to meet face-to-face with clients or patients in medical-related businesses. You can also designate a separate building or structure on your property as your home office. Daycare operators who use their homes for their businesses can claim home office expenses as well, even if the daycare space is utilized for other purposes during off hours.

In 2013, the IRS developed a simpler home office deduction option to go along with the traditional percentage method. Through this alternative write-off method, small business owners are able to claim a flat-rate deduction worth $5 per square foot for up to 300 square feet of home office space. However, there is a deductible amount limit of $1,500.

The regular deduction method typically requires considerable expense documentation and recordkeeping. This is why the IRS added the flat-rate option. On the other hand, using the flat-rate option is not always as helpful to entrepreneurs who reside in areas where the cost of living is above-average. This is why exploring both routes is important to determine the best option for your particular situation.

Financially-strapped business owners and aspiring entrepreneurs should always be on the lookout for ways to reduce their tax bills from Uncle Sam. Whether you claim the home office deduction, the vehicle deduction, or the meals and entertainment deduction, there should be options out there for you to help you keep more of your hard-earned income. It all boils down to finding these deductions, saving your receipts, and then properly claiming them on your tax return.

Total
0
Shares
Previous Article
Business Networking

5 Networking Tips for New Entrepreneurs

Next Article
International Business

Going International? Is your business ready?

Related Posts
virtual assistant
Read More

How Virtual Assistants Can Benefit Startup Leaders

According to venture capitalist Bill Trenchard of First Round Capital, the average startup founder "works about 300 days a year, 14 hours a day." He should know. Trenchard cofounded and led three companies and, as a VC, advises hundreds of startups. "Looking at the schedule of a typical CEO, a full 70 percent of that...
find a new accountant
Read More

5 Signs It’s Time to Find a New Accountant

As a business owner, you likely want to do whatever you can to keep your company’s finances in check. This is why it’s imperative to work with an accountant that you can trust and count on to maximize your enterprise’s financial health. Whether you have an in-house bookkeeper or you outsourced all of your bookkeeping...
succession planning
Read More

Your Business Legacy: Why Succession Planning Is a Crucial Step in Estate Planning

Running your own business is a mammoth task and a considerable investment. Statistics have consistently shown that small business owners have to work longer and harder than the average employee. So, after dedicating so much time and energy to building up a company, it’s crucial to protect it should the worst happen. Almost all of...
supply chain
Read More

How to Keep Vendors and Clients Happy During Supply Chain Hiccups

Supply chain breakdowns are happening due to global disruptions, rising costs and increased consumer expectations. Businesses can't always stop supply chain hiccups, but they can learn from them and limit their impact on vendors and clients. How a business responds to a supply chain issue can have far-flung effects. A company that is proactive and...