Home Office Deductions
If you're self-employed and use part of your home to conduct your business, you can deduct home office business expenses against your self-employment income. The deduction applies to all types of homes and is available if you are a homeowner or renter. A business expense is any expense made when running a business or trade. You can deduct the expenses if the main purpose of the business is to make a profit. Do you have 1099 questions?
The easiest and most accurate way to find out if you can deduct the expenses from your home office is to start a free tax return on eFile.com. Based on your answers to the tax questions, we will determine whether or not you can deduct your home office expenses and we will calculate that deduction for you and report it on your tax return. Read on if you need more information about home office deductions.
On this page:
- Steps to take to track your home office expenses and deduct them on your taxes.
- Examples of what is tax deductible and what is not as self-employed - above-the-line tax deductions like business miles may be applicable to your business.
- How business use of your home affects your taxes and finances plus ways to save money.
How to Deduct Home Office Expenses
In order to claim expenses for business use of your home, you must use part of your home for one of the following situations:
- Primarily (and on a regular basis) as your main place of business,
- As the place where you meet or deal with patients, clients, or customers in the normal course of your trade or business on a regular basis,
- As the primary place of storage for inventory or business equipment,
- For rental use, or
- As a childcare or other daycare facility.
When you prepare your taxes on eFile.com, you will answer simple questions about your home office and eFile will generate this information on Form 8829 and Schedule C and eFileIT with your tax return.
Home Office Deduction Calculation
There are two ways that you can calculate the business percentage of your home eligible for a tax deduction:
- Regular method: Compare the size of the business designated portion of your home to your whole house.
- Simplified method: Multiply $5 by the area of your home used for business purposes (up to 300 square feet). The optional deduction is capped at $1,500 per year.
The IRS allows for any reasonable method of determination when calculating the business percentage of your home. However, you cannot make deductions on the business designated portion of your home for parts of the year that business area was not in use.
The deduction limit for the business use of your home is dependent on the gross income of the business primarily used in your home. See IRS Publication 587 - Business Use of Your Home for more details. If the calculated deductions exceed the yearly limit, you can carryover the deductions to the next year. In most cases, you cannot deduct expenses that are related to tax-exempt allowances.
Tax Deductible Home Expenses
Can I deduct...?
Tax deductions, also referred to as tax write-offs or write offs, are expenses that the government and sometimes state allow you to subtract or deduct from your taxable income. In other words, you can reduce your taxable income by deducting certain allowable expenses from your income. General tax deductible home expenses you can claim on your income tax return include:
Other Self-Employed Deductions
As a self-employed person, you can generally deduct most expenses that directly relate to your business. This means you can deduct mileage you drive for business, tools or equipment purchased for your work, or if you bought a new computer for your home office. These are above the line deductions reported on Schedule C, which means you do not need to itemize your deductions on Schedule A to report them. See more information on self-employment, deductions, and taxes.
- If you are renting your home for business purposes and you meet the requirements for Business Use of Your Home, you can deduct part of the rent you pay on your tax return.
- You might be eligible to deduct your furniture or equipment (such as a computer for personal use) used in your home office. The equipment must pass the more-than-50% test in order to be eligible for a deduction. You meet the more-than-50% test if you use the equipment at least 50% of the time for your business.
- If you eat at a restaurant for business purposes such as a business meeting, the expenses are 50% deductible. If you need to file your previous tax return, these expenses may be 100% deductible for 2021-2022 Taxes only as part of the Consolidated Appropriations Act or CAA. This was due to an effort to build back the restaurant business which had suffered due to the COVID-19 Pandemic.
- You can deduct the purchase of a new car if it is going to be used for your business. If you use the car partially for personal use and partially for business, eFile.com will help you report the allowable business expense based on how much you use the vehicle for business - start free now.
See the table below for a summary of meal and other expenses and the deduction amount you can claim for them.
Meals at a restaurant with partners, clients, prospects, and other people relating to the activity of your business.
Entertainment, such as a sporting event with a business partner or client.
Employee meals purchased by you as an employer.
Employee meals purchased at a restaurant for a meeting or other business purposes.
Meals purchased and served at a business meeting in a hotel.
Meals purchased and consumed in a restaurant on a business trip.
Meals cooked and eaten on a business trip purchased and prepared by you.
End of the year party for employees and their spouses at a restaurant.
Company party not held at a restaurant, only put on for entertainment or celebration.
Treating your best customer to a round of golf or other entertainment.
After a non-deductible game of golf, taking your best customer for dinner and drinks at the country club.
Property for Business Use
You may deduct property for business use that meets the following two requirements:
- Is used for the convenience of your business and
- Is a required condition of your business.
To report listed property for your business, you must eFileIT Form 4562 to claim a depreciation or section 179 deduction. There are specific rules for deducting the operating expenses of a daycare facility out of your home. For further information, refer to IRS Publication 587 - Business Use of Your Home.
Note: You cannot take any depreciation or section 179 deduction for listed property without adequate records.
If you are using property in your home business that was previously designated for personal use, you will have to use a separate method for determining depreciation. You must first determine:
- The adjusted basis of the property on the date of change and
- The fair market value of the property on the date of change.
Deduct business expenses not for the use of your home, including, but not limited to, dues, salaries, supplies, certain telephone expenses, etc.
Tax tip: these expenses are not for the use of your home, so they are not subject to the deduction limit for business use of the home expenses.
Other Factors or the Business Use of your Home
Here are other things to consider when deducting expenses for the business use of your home:
- You may exclude up to $250,000 in gain ($500,000 for certain Married Filing Joint couples) if you sell or exchange your home and meet the ownership and use tests. If you sell or exchange your home, you cannot exclude the part of your home used for business. To meet the test, you must have owned the home for at least two years and lived in the home for two years as a five year residence within a five year period ending on the date of sale.
- If you used part of that home for business, you cannot exclude the part of the gain equal to any depreciation. You must also adjust the basis of your home for any depreciation that was allowable for its business use, even if you did not claim it.
Deductions for a Famiy Business
Whether or not your business is home-based, there are certain tax advantages to employing one (or more) of your children. If you operate a sole proprietorship (or partnership with the other parent of the child) and as long as your child is under the age of 18, payments for their services are not subject to Social Security or Medicare tax withholding. If your child is under the age of 21, payments are not subject to FUTA (Federal Unemployment Tax Act) tax withholding.
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