Home Office Deduction Explained

Hi, I am Bette Hochberger, CPA, CGMA, and on today's quicky, we will be discussing the Home Office Deduction. The main questions we are tackling are: What is the home office deduction, what qualifies, and how do I calculate it? As a bonus, I will also walk you through the two ways the IRS allows you to claim the home office deduction, the simplified option and the regular method (i.e., Form 8829). What is the home office deduction? The home office deduction is a tax deduction the IRS allows Schedule C businesses to take. Schedule C refers to the portion of the 1040 tax return that deals with people who run their businesses as sole proprietors, so single-member LLCs, and 1099 workers. In short, this deduction allows sole proprietors to deduct expenses related to their home offices. What Qualifies? The space must be exclusively and regularly used for Schedule C business purposes for your space to qualify for the home office deduction. Exclusively meaning, the space is only used for business purposes. Regularly means, you use the space often and continuously. If you meet these requirements, you may deduct a portion of your home expenses (e.g., mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent). How do I calculate it? The IRS provides two options for calculating the home office deduction. The first is the simplified option, which is a rate of $5 per square foot, so if the qualified area is 150 square feet, you multiply 150 X $5, giving you a deduction of $750. Using this method, the maximum amount of space you can deduct is 300 square feet. Now, if this is not advantageous, you can use the regular method, Form 8829. I highly recommend you consult with a professional before attempting this form on your own and doing some tax planning to find out if it would be worth it to go through the headache of filling out the extensive Form 8829. Please watch the video above if you want to see my overview of the form. That is all we have today; I hope you learned something new. If you have a specific topic you want to see discussed, don't hesitate to DM me, and I will put it on the docket. As always, stay safe, and we will see you next time.