Your “home sweet home” can be a tax deduction if you work from home. And, thanks to recent tax-law changes, you no longer need a high tax IQ to get it.
If you meet the requirements, you can simply measure your home office and deduct $5 a square foot, up to 300 square feet. If you’re willing to do some math instead, you might get a much bigger deduction.
David Long, a retired IRS agent who now works as a tax manager at DE-Taxes in Wilmington, has seen sundry home-office deductions in his 45 years of tax work.
“Some people get, what I would call, greedy when it comes to what they’re able to claim, and some people aren’t even aware they can take a deduction,” he said. “I make them aware this is a legitimate deduction they can take if they meet all the requirements.”
The home-office deduction is open to consultants, photographers, freelancers, real-estate salespeople and others who use their homes as their principal place of business, said Long.
To claim it, you must have a dedicated workspace in your house or apartment. One caveat from Long: “You can’t just have your desk in your living room, where you have a TV and an entertainment center. You can’t be sitting in your bedroom at night, working up bills and saying that’s your office.”
If your office is bigger than 300 square feet or if you’re willing to do more work to cinch a bigger deduction, you can tally your actual expenses and deduct a percentage of them.
Say you legitimately use one-fifth of your home as an office. You can tally all your costs—from rent or mortgage payments to utilities and that bill for replacing the electric outlet. Then you deduct one-fifth of that total. Don’t forget sewer, trash, water, phone and Internet.
Long said he usually advises the $5-per-square-foot deduction only for clients who work out of small apartments and those who didn’t keep track of their actual expenses that year.
Some homeowners pass on the deduction because they fret they’ll have tax repercussions when they sell their homes. Actually, that’s not a problem. Deducting expenses for a home office doesn’t trigger capital-gains issues. Depreciating your office space does.
Long said he usually advises clients to take the office deduction, unless they have a relatively new business that’s already running at a loss. That could throw up a red flag to the IRS, he said.
But, if you run a profitable home business, lose the qualms. The odds of you getting flagged are very low, said Long, who should know.
“You’d have to have something else on your tax return that would get it audited, and then, when you look at it, the expenses would stand out,” he said.