Starting and running your business from home can bring tremendous benefits besides the pay. Without a long commute, you can have more time for family and since you probably have lower expenses (no rent and utilities for an off-site office space), you have a few more options with the money saved.
Although it can be financially beneficial to have a home office, there are still costs associated with it, so minimizing your taxes can be a huge help. However in order to minimize your taxes be sure you take all the home office deductions you qualify for.
Five Rules to Keep In Mind with Home Office Deductions
Here are five things to keep in mind as you work at home:
- You’re entitled to deduct ordinary and necessary expenses, as long as they are related to the business. Make sure to keep good records, keep all your receipts, and it is useful to set up a regular time each week or month to review your expenses. The key here is making sure that you can clearly justify them as business expenses. QuickBooks Self-Employed can help you easily track and categorize your tax deductible business expenses year round so you are ready for tax-time.
- If you want to deduct your home office space make sure it meets the requirement – it’s a space that is exclusively and regularly used for your business. (Exception applies with home day cares)
- If your home office is 10% of your home’s total square footage, you can deduct 10% of your home bills such as utilities, mortgage or rent expense, home owners insurance, and general maintenance. Be aware of your both your home and home office size, as your home office deduction is based on the portion of your home you use for business.
- Record deductions for both direct expenses (like an exclusive business line or repairing the office) and indirect expenses (like those mentioned in tip #3 along with homeowners association fees and security system) that you incur each year.
- You can also take advantage of the newer simplified home office deduction up to $1,500, which is the set dollar amount of $5 per square foot of your home used for your business up to 300 square feet. As I mentioned in the second tip, you will still have to make sure your space qualifies.
With careful records, you can run your business and maximize your qualifying tax deductions. Don’t worry about knowing these tax rules, TurboTax will ask you simple questions about you and your business and give you the tax deductions you are eligible for based on your answers. QuickBooks Self-Employed will also help you easily track and categorize your business expenses so you are ready for tax-time.
Thoughts on Home Office Deductions
I’d love to know how many of you are business owners and entrepreneurs and any questions you have. How many of you are running a business from home? Are you taking full advantage of your qualifying tax deductions?