Your Guide to Claiming a Legit Home Office Tax Deduction

I’d bet that on just about every city block or long country road, someone is operating a business from their residence. According to the U.S. Small Business Administration, about 50 percent of businesses are home-based, with a larger percentage (60 percent) working as solopreneurs with no employees.

Having a home-based business is one of the easiest and least risky ways to become an entrepreneur, test your business ideas, and increase your income. No matter if you run a business full-time or as a side gig, claiming the home office deduction can significantly reduce your taxes.

No matter if you run a business full-time or as a side gig, claiming the home office deduction can significantly reduce your taxes.

I received an email from John, who says, “My New Year's resolution is to earn more money working during my off-hours and on weekends. Since the work will likely entail making deliveries for different mobile apps, I’m not sure if it qualifies me for the home office tax deduction. Can you explain more about it?”

Thanks for your great question, John! In this post, I’ll give an overview of the home office deduction. You’ll learn who qualifies, which expenses are deductible, and how to legitimately claim this money-saving tax break no matter what type of business you have.

Who can claim the home office tax deduction

If you work for yourself in any type of trade or business, either full- or part-time, and your primary office location is your home, you have a home business. The designation applies no matter whether you sell goods and services, are a freelancer, consultant, designer, inventor, Uber driver, or dog-walker.

If you work for yourself in any type of trade or business, either full- or part-time, and your primary office location is your home, you have a home business. 

You can have a home-based business even if you’re like John and mostly earn income away from home. This is common for many trades and solopreneurs, such as musicians, sales reps, and those working in the gig economy. If you’re self-employed and do administrative work like scheduling, invoicing, communication, and recordkeeping at home, you have a home business.

Note that employees who work from home can’t claim a home office deduction. W-2 workers used to be allowed to include certain expenses if they itemized deductions. But tax reform took away that benefit starting with the 2018 tax year.

The home office deduction is available for any self-employed person no matter whether you own or rent your home, with the following two requirements:

  1. Your home office space is used regularly and exclusively for business
  2. Your home office is the principal place used for business

You must regularly use part of your home exclusively for conducting business. For example, if you use a guest room in your house or a nook in your studio apartment to run your business, you can take a home office deduction for the space.

You don’t need walls to separate your office, but it should be a distinct area within your home. The only exception to this “exclusive use” rule is when you use part of your home for business storage or as a daycare. In these situations, you can consider the entire space an office for tax purposes.

Additionally, your home must be the primary place you conduct business, even if it’s just the administrative work you do. For example, if you meet with clients or do work for customers away from home, you can still consider the area of your home used exclusively for business as your home office.

Your home doesn’t have to be the only place you work to qualify for the deduction. You might also work at a coffee shop or a co-working space from time to time.

You could also consider a separate structure at your home, such as a garage or studio, your home office if you use it regularly for business. Also, note that your home doesn’t have to be the only place you work to qualify for the deduction. You might also work at a coffee shop or a co-working space from time to time.

RELATED: How to Cut Taxes When You Work From Home

Expenses that are eligible for the home office tax deduction

If you run a business from home, two types of expenses are eligible for the home office deduction: direct expenses and indirect expenses.

Direct expenses are the costs to set up and maintain your office. For instance, if you work in a spare bedroom, you might decide to install carpet and window treatments. These expenses are 100 percent deductible, no matter the size of the office.  

Indirect expenses are costs related to your office that affect your entire home. They’re partially deductible based on the size of your office as a percentage of your home. 

For renters, your rent, renters insurance, and utilities are examples of indirect expenses. You’d have these expenses even if you didn’t have a home office.

For homeowners, you can't deduct the principal portion of your mortgage payment, which is the amount borrowed for the home. Instead, you’re allowed to recover a part of the cost each year through depreciation deductions, using formulas created by the IRS.

Other indirect expenses typically include mortgage interest, property taxes, home insurance, utilities, and maintenance. Allowable indirect expenses actually turn some of your personal expenses into home office business deductions, which is fantastic!

Allowable indirect expenses actually turn some of your personal expenses into home office business deductions, which is fantastic!

However, expenses that are entirely unrelated to your home office, such as remodeling in other parts of your home or gardening, are never deductible. So, your ability to deduct an expense when you’re self-employed depends on whether it benefits just your office (such as carpeting and wall paint) or your entire home (such as power and water).

Also, remember that business expenses unrelated to your home office—such as marketing, equipment, software, office supplies, and business insurance—are fully deductible no matter where you work.

How to claim the home office tax deduction

If you qualify for the home office deduction, there are two ways you can calculate it: the standard method or the simplified method.

The standard method requires you to determine the percentage of your home used for business. You divide the square footage of the area used for business by the square footage of your entire home.

For example, if your home office is 12 feet by 10 feet, that’s 120 square feet. If your entire home is 1,200 square feet, then diving 120 by 1,200 gives you a home office space that’s 10 percent of your home. That means 10 percent of the qualifying expenses of your home can be attributed to business use, and the remaining 90 percent is personal use. If your monthly power bill is $100 and 10 percent of your home qualifies for business use, you can consider $10 of the bill a business expense.

To claim the standard deduction, use Form 8829, Expenses for Business Use of Your Home, to figure out the expenses you can deduct and then file it with Schedule C, Profit or Loss From Business.

The simplified method allows you to claim $5 per square foot of your office area, up to a maximum of 300 square feet. So, that caps your deduction at $1,500 (300 square feet x $5) per year.

The simplified method truly is simple because you don’t have to do any record-keeping, just measure the space and include it on Schedule C. It works best for small home offices, while the standard method is better when your office is larger than 300 square feet. You can choose the method that gives you the biggest tax break for any year.

But no matter which method you choose to calculate a home office tax deduction, you can’t deduct more than your business’ net profit. However, you can carry them forward into future tax years.

As you can see, claiming tax deductions for your home office can be complicated. I recommend that everyone who’s self-employed use a qualified tax accountant to maximize both home office and business tax deductions.

Yes, professional advice costs money. But it’s well worth it, and it usually saves money in the long run when you know how to take advantage of every legit tax deduction.

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How to Attract Birds to Your Yard

Attract Springtime Birds

In the spring, birds are busy building nests, so attract them to your yard with some of these nesting materials for them to collect.

DIY Birdbath

Almost everyone has some old terra-cotta pots tucked away in the garage or the basement. Why not reuse them to make a cute backyard birdbath to attract birds? You’ll need three largish pots of increasing sizes, a large terra-cotta saucer, silicone caulk, and spray paint (optional). First, make sure the pots are clean and free of all dirt and debris. If desired, spray paint them whatever color(s) you’d like. Then stack the pots upside down from large to small, creating a tower. Caulk each in place as you go along. Center the saucer on top of the tower, and then caulk it as well. Fill with water, and you’ve got a great new place for birds to hang out!

How to Keep Your Birdbath Clean

Your birdbath used to be a hot spot for the feathered folk, but ever since it became slimy with algae, they’ve stayed away! Make your birdbath as fresh as new by emptying the water, then covering it with vinegar-soaked paper towels or newspaper. (Lavender oil also works.) After letting the paper sit for 5–10 minutes, remove it and rinse the bath thoroughly. Then fill it with fresh water and watch the birds enjoy.

Attract Even More Birds to Your Birdbath

Want to make your birdbath a hotspot for your feathered friends? Simply add some colorful marbles or pebbles to attract neighborhood birds. The brighter the color, the better!

Easy DIY Bird Feeder

The bottom side of a paper egg carton makes a handy little bird feeder. Paint it if you’d like, then punch holes in the corners and use string to attach it to a tree branch. Each section can hold a little birdseed.

Orange Bird Feeders

Like we said, birds love color! Attract more birds to your backyard with these orange-half feeders. Cut an orange in half, and scoop out all of the pulp. With an awl, make four evenly spaced holes along the edge of each empty half. Then hang it from a tree by running yarn through the holes and tying to a tree branch. Fill with birdseed, and enjoy watching your new avian friends. This is also a great activity to do with kids!

For more great outdoor tips, check out our Gardening and Yard Tips Pinterest board, and don't forget to follow us on Facebook for our Tip of the Day!

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Using Credit Cards During COVID-19

Since we’re in the middle of a pandemic, we’re all trying to figure out the new normal. Whether you’re working from home, have a houseful of kids to keep busy or find yourself facing financial uncertainty, everyone has at least a little adjusting to do. While you’re taking stock of your life and what you… Read More

The post Using Credit Cards During COVID-19 appeared first on Credit.com.

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How to Plan a Budget If Your Home Is a Fixer Upper

When your home is a fixer-upper, it can be difficult to even know where to start with a renovation. The list can be overwhelming—fix the patio, change out the mustard yellow carpet, buy furniture, paint the house. With a never-ending to-do list, planning a budget can seem virtually impossible.

By sorting through your list of wants and needs and focusing on essentials, you can outline a budget that won’t keep you up at night. Here are some tips on how to plan a budget for turning your fixer-upper into your first dream home.

How to Plan a Budget If Your Home is a Fixer Upper

1. Sort through the “wants” and “needs.”

Where do you even start with a renovation budget? With a limited fixer-upper budget, it’s essential to make functionality the first priority. When the roof is leaking and your fridge is dead, this is where the budget begins. First, determine what infrastructure items require repair or an essential upgrade, as these are typically big-ticket items. Next, focus on beautifying projects that will reap benefits in the long run, like bathrooms and kitchens. Hold off on budgeting fancy appliance upgrades and expensive decor if you already have working items—these can come at a later time after you take care of all the essentials.

How to Plan a Budget If Your Home is a Fixer Upper

2. Consider purchasing used over new.

Give your budget more flexibility by going for used over new with certain big-ticket items. Used appliances, for instance, can be found in great condition from other remodels or homeowners upgrading to the latest technology. Used furniture is also a fantastic way to keep your fixer-upper budget low. Don’t forget—sofas, vintage chairs, tables and more can be easily reupholstered and refinished. They’ll look brand new for just a fraction of the cost. 

How to Plan a Budget If Your Home is a Fixer Upper

3. Be ready to DIY with a gift card.

As a first-time buyer, there’s a 99 percent chance you’ll be diving into the realm of DIY. Learning one or many DIY skills will not only come in handy with home repairs in the future, but it’s a fantastic way to keep labor costs low. If you’re worried your DIY supply budget will get out of hand, however, shop with a gift card to your local hardware store. That way, you’ll always be working with a fixed amount of money and won’t be tempted to add on any expensive extras. It’s a guaranteed way to keep your budget in check.

How to Plan a Budget If Your Home is a Fixer Upper

4. Get creative.

Fixer-uppers are great hands-on projects, and creative solutions are key for keeping your budget in line. For items like cabinetry that may be in good condition but out of style, get creative with refinishes to bring new life into your space. Give your kitchen a fresh take by painting cabinets in a modern shade, or reface them for a whole new look without the added cost of all-new cabinetry. Replace hardware on cabinetry, furniture and built-ins to make your pieces feel brand new. Even outdated fireplaces, doors, furniture and windows can go a long way with a fresh coat of paint and new hardware. Consider this cheap alternative to help save room in your budget for the fun stuff.

How to Plan a Budget If Your Home is a Fixer Upper

5. Let the professionals help.

Whether you’re starting with the kitchen or diving into a full-scale remodel, don’t be afraid to seek professional help. No matter what your budget, a professional’s advice can help ensure that your renovation has as few hiccups as possible. City codes, minute details and hidden elements can wreak havoc on projects, so let a master guide you through those hurdles instead of trying to blindly tackle them yourself. Don’t let the potential price tag deter you from investing in having expert guidance—many architects and designers have options for paying an hourly rate. This is a great option, especially for fixer-upper and DIY projects, as it allows your plans to be looked over by professionals without the price tag of a full design scope. 

What are your must haves for your fixer-upper?
 
 
Kerrie Kelly is a California interior designer who has helped many young couples choose their “first-home-together” decor. Kerrie writes on her design experiences for The Home Depot, offering homeowners ways to save money without compromising design.
 
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8 Money-Saving Tips for Improving Your Bathroom’s Design

I don’t know about you, but for me, a bathroom goes well beyond its practical uses; within the past years, I’ve come to think about it as a sanctuary of sorts, that room of the house that’s dedicated to pampering, relaxing, and deconnecting — a place where I can enjoy some alone time and use […] More

The post 8 Money-Saving Tips for Improving Your Bathroom’s Design appeared first on Fancy Pants Homes.

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7 Top Decorating Ideas for Your Bedroom this Fall: Making Your Room More Cozy & Stylish

Fall is one of the most exciting seasons of the year. The trees, the smells, the comfy sweaters and pumpkin spice lattes; it’s a cozy, wonderful time and who wouldn’t want to enjoy that warm vibe all year long? And since this is the season that prompts us all to spend a little more time […] More

The post 7 Top Decorating Ideas for Your Bedroom this Fall: Making Your Room More Cozy & Stylish appeared first on Fancy Pants Homes.

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7 Tools for Protecting Your Walls

Protect Your Walls from Cracks

Before driving a nail into a plaster wall, place a small piece of tape over the spot you’re working on. This simple prep step will prevent cracking in the plaster.

Patch It Up

To make a putty for quick patches, combine a tablespoon of salt with a tablespoon of cornstarch.

Mix them together with just enough water to make a paste. Apply while still wet.

Crafty Use for Old Gift Cards

 

In need of a thin yet sturdy household tool for scraping grout, repairing holes in walls, or filling scratches in wood? Use a used-up gift card (or expired credit card) for the job—any unusable hard plastic card will do. And if you’re anything like us, you have plenty of those!

Wall Hole Solution

You’re moving out of an apartment and need to fill in the holes in the wall caused by nails. Just grab a bar of white soap and rub across the hole until the soap fills it. It’s not a permanent fix, but it will make the walls look clean until they can be repainted.

Another Wall Hole Solution

Before spackling small holes in your wall caused by nails, first cut a Q-tip in half and insert in the hole, stick end first. Then spackle as you normally would. The Q-tip will completely fill the hole and ensure you won’t have to go back for a second pass.

Finding Imperfections

Filling and sanding every hole in the wall before you paint can be enough of a pain, but sometimes it’s hard to find every crack, hole, and imperfection. Make your job easier by turning off the lights in a room, then slowly running a flashlight over the entire surface of the wall. The light will cast different shadows in these areas, making them easier to see than they would have been in the daylight.

Got a Screw Loose?

You’ve just struggled to remove a stripped screw from the wall. Now how do you fix the hole? Use a wooden golf tee! First, squirt some wood glue into the hole, then insert the tee as far as it will go, tapping it in place with a hammer. Next, use a utility knife to cut the tee flush with the wall. You’ve now made a stable base for the new screw. Drill a pilot hole into the golf tee, and insert your new screw. Problem solved!

 
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