With tax season on the horizon, it’s never too early to start identifying which deductions you could qualify for when you fill out the appropriate forms. Those of you who work from home full-time or even occasionally may be able to claim a number of write-offs to which you are entitled. But while some deductions might be somewhat self-explanatory, there are others you might have missed. We’re here to help you pinpoint the wide variety of potential deductions that small business owners and employees alike could list on their taxes.
The Tax Code Rules
Section 280a(c) is the part of the tax code that maps out the qualifying requirements that must be satisfied in order to be eligible for home office tax deductions. The most important of these requirements dictates that your home office is located in one area of the home that is dedicated only for conducting business and nothing else.
This can be an entire room, a far off corner of the living room or some other location in or on your property, as long as nothing else takes place other than the operation of business in that area. Therefore, you can’t work from your couch and coffee table and claim that as a home office. You use that couch for other things like recreation and entertainment. Whatever part of the house you plan to identify as a “home office”, be sure you can prove that nothing else takes place in that room or area of the home should you come under closer scrutiny by the IRS.
The Most Overlooked Deductions
Now that you’ve determined your home office is eligible for taking tax deductions, be sure not to overlook the following. These are some of the most neglected write-offs that too many small business owners forget to take or aren’t sure they are able to take. A good rule of thumb is to ask a tax professional in the event that you are confused about any deduction and whether or not you can claim it on your taxes.
Some taxpayers will overlook taking a deduction on the area of their home office because it can be confusing to determine how much space they are able to claim. When you take a home office use deduction, you are only allowed to deduct the square footage of the area in which you work. That does require some measuring and calculating and that can be downright puzzling to get entirely right. But the tax laws have been rewritten in order to make getting this deduction somewhat easier.
As per the statutes, you are permitted to claim a deduction of $5 for every square foot of the area in which your home office is located. But there is a maximum of 300 square feet that you are allowed to write off. You may still want to measure your space or you could take a reasonable estimate that won’t get you in hot water should the IRS elect to audit you. Should you opt to claim the full maximum of 300 square feet, you would be claiming a deduction of $1,500.
Upgrading Your Office
Did you perform any repairs or renovations on your home office space over the course of the year? If so, you may be able to deduct those costs from your taxes. Remember, these had to have been done in the area where your home office is located, NOT just a general area in the home. If a repair or renovation done on the home falls within your predetermined home office space then you can calculate the cost of the renovation in that space only, subtracting it from the cost of the full renovation. You may then deduct that cost only.
For example, say you spent $5,000 on a renovation of the home and home office area was part of that renovation. You would need to calculate how much the renovation cost within that space (for argument’s sake, let’s say it’s the maximum 300 square feet) and once you have that number, you can then claim that write-off on your taxes.
Furniture and Decoration
Did you buy a desk, a chair, some artwork, even a trash can? As long as they remain solely in your workspace (no moving that chair into the living room for movie nights), then you can write off those expenses on your taxes. But be smart about it, don’t expect to buy a sketch by Renoir for six figures and then hang it above your desk in order to write off the cost. Sounds obvious, but you wouldn’t believe what people try to pull off on their taxes.
Every office needs supplies and any of them you may have purchased over the course of the tax year could be deductible, again, as long as they were for your home office only. Not used or borrowed by you or anyone else in the home. Printer ink, paper clips, paper, pens, pencils, if it’s used in the course of your business day, you should be eligible to write off that expense.
But it’s not just the consumables that are eligible. Your laptop, tablet, phones, anything that you rely on during business hours can be claimed on your taxes, however, if you use those items after hours and for personal reasons then you’ll need to calculate how much time is spent doing business and how much is personal on those items, then write off the corresponding portion of the cost of those items.
Among all of the expenses you may consider writing off, you probably didn’t consider your utility bills. But you should, because while your home is using those utilities such as heat, the AC, even the lights, the area in which your home office is located is also consuming that energy. Should you wish to claim the deductions on those utility costs, you guessed it, you’ll need to calculate and subtract the costs that only apply to the square footage of your established home office. When you’re tallying your utility bills to claim on your forms, be sure to remember to include the Wi-Fi, since it’s very likely your business relies heavily on fast Internet access.