For employees, home office expenses are a miscellaneous itemized deduction. This means you’ll enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses exceed 2% of your adjusted gross income (AGI).If, however, you’re self-employed, you can deduct eligible home office expenses against your self-employment income. Finally, be aware that we’ve covered only a few of the rules and limits here. If you think you may be eligible for the home office deduction, contact us for more information.
Working from home has become increasingly common and people are curious if they can deduct their home office expenses from their taxes. The eligibility requirements are different for self-employed people versus people with employers. If you use a home office for your employer’s convenience not just your own you are eligible to deduct your expenses. If you are self-employed a home office that is your primary place of business can likely be deducted. It is important to note that there are exceptions to every rule and a CPA is your best bet for fully understanding what can and cannot be deducted from your income taxes.
No matter how you are employed a home office must meet some standards to be deductible. The office space must be exclusively used for business purposes and must be used regularly. If your home office is also a guest room, play space for your kids or anything other than an office you likely wont be able to deduct the expenses.
If you meet the eligibility requirements you may be able to reduce your taxes significantly. Some of the expenses you may be able to deduct include insurance, utilities, property taxes, mortgage interest and other expenses. The depreciation expense of the office space may also be deductible.
A CPA may also recommend that you use the “safe harbor: approach for your deduction. This allows you to skip the calculating of the costs related to your home office expenses and instead use a standard deduction. The deduction is capped at $1,500 per year and is based off a $5 per square foot cost with 300 square feet maximum. This is a much easier approach but may not yield as high of a deduction.
There are additional considerations you may need to consider. If you are an employee you will deduct your home office expenses as a miscellaneous itemized deduction. In this situation you will only be eligible for a tax benefit if your miscellaneous itemized expenses are more than 2% of your AGI or adjusted gross income.
As a self-employed person your home office expenses can be deducted against your self-employment income. This is only the beginning of the rules and limitations on home office and work related deductions. A home office deduction may be a great way to save some money but a CPA is your best resource for information on deductions. Contact a San Diego CPA today.
