One way that you may be able to lower your taxes is by taking the home office deduction! If you are a business owner and work from home, you may qualify for the deduction.
You can take this deduction if you use a portion of your home exclusively, and on a regular basis, for any of the following:
- As your main place of business.
- Where you meet clients or customers.
- A place where you store inventory or samples. This place must be the sole, fixed location of your business.
If you meet the above requirements for a home office, then you are allowed to deduct a portion of your home expenses, including:
- Rent
- Real estate taxes
- Mortgage interest
- Insurance
- Utilities
- Repairs and Maintenance
There are two options for figuring and claiming the home office deduction:
Regular Method
With this method you take your home office square footage and divide it by your total home square footage. You then take that percentage of your home expenses (the ones listed above) as a deduction.
Simplified Method
Don’t really want to keep track of all of your home expenses and want to keep it simple? This is the method for you. The simplified method has a set rate of $5 a square foot for business use of the home. The maximum deduction allowed is based on 300 square feet.
Important Reminder
It’s important to remember that you don’t want to pay your home expenses through your business. You want to pay for these expenses from your personal account and track them separately. You will take this deduction on your Schedule C, which is a form in your personal federal income tax return where you disclose your business income and expenses.
If your business has elected to be taxed as an S-Corp, then this deduction gets a little more complicated. You have to establish an “Accountable Plan” where you (as the employee) are reimbursed for your home office expenses.
If you are killing it in your business and filing as an S-Corp, then you should be working with an accounting firm to help you sort these things out.
Reach out to learn more!
