Home Business Tax Deductions

Home office

You can claim a deduction for a home office. According to the IRS, a home office must meet two requirements:

• You must regularly use part of your home exclusively for conducting business, and
• You must show that you use your home as your principal place of business

If you do have a home office, you can deduct expenses related to the upkeep of your home/place of business, such as

• rent
• mortgage interest
• insurance
• utilities
• repairs
• depreciation, etc.

Here’s how to calculate your business percentage.

As a reminder, a home office doesn’t have to be an entire room – you can claim part of a room. The resulting percentages is how much of your home-related business expenses you can claim.

1. Measure and divide the area (length multiplied by the width) used for business by the total area of your home.
2. If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home.

Situation 1
If your home office is 240 square feet (12 feet × 20 feet) and your home is 1,200 square feet, the calculation is 20% (240 ÷ 1,200) of the total area of your home. Overall, your business percentage is 20%.

Situation 2
Let’s say you use one room in your home for business and your home has 10 rooms; all equal in size. Your office is 10% (1 ÷ 10) of the total area of your home. Then, your business percentage is 10%.

Be aware that claiming the home office deduction may increase the likelihood that you are audited.

If that’s the case, the burden of proof will be on you to demonstrate that your home office meets the two conditions. So if you’re claiming that your home office contains the only computer in the home of a multi-person family, the IRS is not likely to believe the office is used exclusively for business.

Office supplies

Regardless of whether you claim the home office deduction, you can claim a deduction for the business-related office supplies you purchase. Just be sure to save your receipts.

Office furniture

You can also deduct the cost of purchasing office furniture. When claiming this deduction, you can choose either to deduct 100% of the cost in the year that you purchased the furniture or deduct a percentage of the cost over the next seven years. This second option is known as depreciation.

Other equipment

The other business equipment you can claim includes computers, copiers, fax machines, scanners, etc. As with office furniture, you can either deduct the entire cost in the first year, or depreciate the cost of the next five.

Telephone charges