Having a home office allows self-employed taxpayers to deduct a portion of the house expenses if they have a qualified home office.
A qualified home office can be a room in your home, dedicated space on your houseboat, an unattached garage, or even space in a barn, but it must be regularly and exclusively used to conduct your business operations, and it must be the principal location of your business or a place where you meet regularly with customers, clients, or patients. Check out IRS Tax Topic 509, Business Use of Home for more information.
There are two options for taking the deduction.
- You can claim the actual home office space as a percentage of your total home expenses. For example, you have a 1,000 square foot apartment and a 100 square foot room for the home office. Your deduction would be 10% of all the apartment or home expenses like rent, mortgage and taxes. Items such as insurance, telephone and internet, and utilities are also allowable as expenses.
- A standard amount called the Simplified Method allows $5 per home office square foot, with a limitation of up to 300 square feet. From the example above, your home office deduction would be a straight $500, and you wouldn’t need to track or list out any specific home expenses.
Regardless of which method you use for the home office expense deduction, you’ll want to document that the home office is used regularly and exclusively for business, and that it’s one of your principal places of business.
Some records you should consider producing are logs of the work done in the home office, schedules of meetings with customers, business letterhead, advertisements, or business cards with your home listed as a principal business location.
You may also want yearly photos of the office space that show the space in proper business order.