Make Money From Home

Understanding the Home Office Deduction: A Beginner’s Guide – The Motley Fool

Image source: Getty Images

If you’re not using the home office deduction, y…….

Image source: Getty Images

If you’re not using the home office deduction, you could be paying more in taxes than you need to. The Ascent guides you through how to use this deduction.

The COVID-19 pandemic caused an avalanche of people working from home for the first time. We’ve written about the problems and opportunities created by that shift a lot here at The Ascent. Writers have talked about: tools for working remotely, work from home hacks, and distraction proofing strategies.

All interesting things. Now, it’s time to put on our gloves, get the shovel, and dig into everyone’s favorite topic: tax write-offs.

We’ll go over the home office deduction and talk about who can use it, how to apply it, and how much money you may save.

Overview: What is a home office deduction?

If you own a business and work out of an office or retail building you rent or own, you can claim several deductions to taxable income. You would directly deduct rent or interest paid on debt, utilities, depreciation, insurance, and repairs and maintenance.

The home office deduction allows you to take those same deductions on your tax return if you have a home-based business.

Who qualifies for the home office deduction?

Small business owners and independent contractors with a home business can use the home office deduction to write expenses off of their small business taxes.

Here are the key items to keep in mind if you’re considering using the home office deduction:

  • IRS home office rules dictate that the home must be the principal place of business. You can do business elsewhere, but most of it must be done at home.
  • When deducting home office expenses, you can use the portion of your house only that is used for the business and, this can’t be stressed enough, you can’t use that area for anything else. The best strategy is to set aside a room to use as an office and keep the door closed when you’re not working. If you have kids, put a sign on the door that says, “Monsters: Keep out!”

Simplified deduction vs. regular expense deduction: Which method is best?

If you have any experience with the IRS, you’re probably already leaning toward the simplified method. The IRS definition of regular, especially when it pertains to business taxes, usually means something like 20+ pages of paperwork, months of headaches, pledging of your first born, and threats of voodoo magic.

I recommend calculating your deduction both ways and then choosing whichever approach lets you deduct more. …….


Leave a Reply

Your email address will not be published. Required fields are marked *