Investors, Tenants

Tips for Deducting Your Home Office

Don’t be fearful.

Many people are concerned about home-office deductions being a red flag for the IRS. A survey of people who claimed a home-office deduction versus those who didn’t found that the chance of getting audited was the same in both groups. If you’re eligible for the deduction, take it. It could be worth thousands of dollars.

Keep it simple.

The IRS has a simplified option for home-office deductions that a lot of people don’t know about. It’s $5 per square foot for your home office up to 300 square feet, a $1,500 maximum deduction and you don’t have to keep any records, but would recommend you do so.

If you’re worried that you’re leaving money on the table by figuring your home-office deduction this way instead of through utility bills and such, don’t be. I’ve found the $5 per square foot isn’t that far off from other ways to figure that deduction.

Make sure your office is an office.

The definition of a home office is a place used exclusively for business. If you have a small house and do your contracts, pay bills or follow-up on email at night on the kitchen table, that doesn’t count. A bedroom that doubles as an office is also not eligible for a home-office deduction. Neither is a media room with a desk. It must be a dedicated space.

The bottom line

  • The home office deduction is not a red flag for an IRS audit.
  • Whether you qualify for this deduction is determined each year.
  • Deducting a home office is treated differently depending on your business type.
  • The simplified method can make it easier for you to claim the deduction but might not provide you with the biggest deduction.
  • Tax preparation software can help you figure out if you qualify and calculate all your home office deductions.