How to Make the Most of Your Home Office Deductions
The IRS allows self-employed individuals who work primarily from home to deduct multiple expenses come tax time. This can be a valuable benefit as more of us set up remote offices. However, just because you work from home doesn’t mean you qualify for these deductions. You must meet the following criteria:
- Be self-employed, an independent contractor/freelancer or a gig worker. W-2 employees who work remotely are not eligible for deductions.
- Exclusively and regularly use an area of your home as your primary place of business. If you also rent office space outside your home, you are not eligible for the deduction. Also, the space must be dedicated solely to working. For example, if you work at your kitchen table and also eat meals there, the space does not qualify.
- For the purpose of the deduction, a “home” may include a house, apartment, condominium, mobile home, boat or similar property, as well as structures on the property (such as an unattached garage, barn, studio or greenhouse).
What expenses are tax-deductible?
Eligible home office deductions are based on the percentage of your home that you use exclusively for business. To determine this percentage, divide the square footage of your office space by your home’s total square footage. Use this number to determine the appropriate percentage of each expense. A few lesser-known deductions include:
- Homeowner’s insurance
- Cleaning services
- Mortgage insurance and interest
- Real estate taxes
- Homeowner’s association fees
- Utilities, including electricity, gas, internet and phone
- Repair and maintenance (note that direct expenses, such as fixing a wall in your office, are 100% deductible; indirect expenses, such as fixing a leaky roof, are only partially deductible based on the percentage of your home used for business)
In addition to the lesser-known deductions above, you may also be eligible to make standard business deductions, such as:
- Business taxes and licenses
- Business insurance
- Travel expenses
- Professional services, such as accounting and legal support
- Marketing and business development
- Car-related expenses, when used for work
- Employee payments
- Retirement plan contributions
- Cost of goods sold
If you have questions about whether your business qualifies for the tax deductions mentioned above, Creative Planning is here for you. We help ensure our clients are maximizing their eligible deductions while minimizing their tax liabilities. For help with tax planning, or with any other financial matter, schedule a call with a member of our team.