What Are The Tax Advantages of a Home Office?

If you are a US taxpayer, and you run your business from home, you may be able to take advantage of some tax advantages. Keep in mind, that you should not abuse this allowed tax deduction because that would be asking for trouble. Also note that I am not a tax professional, and laws change, so you should verify this information with a tax professional or the IRS rules (available on irs.gov).

Personally I use some software that gets updated constantly over the internet. It tells me what I can deduct in the form hits and a checklist so it makes calculations simple. You may want to purcase some software like this if you would rather not use an accountant, tax service, or comb through vast IRS regulations yourself!

Indirect vs Direct Office Expenses

I think one of the simplest ways to calculate your allowed deduction is to take your office space as a percentage of your total home. If you use a 150 square foot office, and your total home has 3,000 square feet, you would start with 5%. Then you can simply add up your utility bills, taxes, etc., and deduct 5% of that amount as a deduction. Tax software or a qualified tax professional can help you find all or the allowed expenses. This is taking an indirect deduction.

Now direct expenses would be those things that are only performed for your office. An example might be special lighting or internet wiriing that you need to do business, but do not use in the rest of your home.

Keep in mind that the home office must be used for your business, and should not double as home living space. There is another deduction, called home storage, that will be more leniant if you use a room to work and live in.

Learn more: Can you deduct your home office?

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