Doing Your Homework: How to Maximize Your Home Office Deduction

If you work from home, you may be eligible for tax deductions on part of the rent or mortgage payments you make, but you may be afraid this puts you at risk of a tax audit. And, rightly so. Calculating your home office deduction properly can minimize your taxes and keep you out of risk.

The IRS provides two methods with which you can calculate your deduction: the simplified method and the regular method.

Assuming your home office space is regularly and exclusively used for your business operations, you can choose the method that will give you the biggest deduction. Let’s take a look at these methods to see what kind of benefit they can provide the business owner.

Home Office Deduction Methods

The simplified method is based on the square footage of the office space in your home. To determine your deduction, simply multiply your home office square footage by $5. For example, if your allowable home office square footage is 60-sq-feet, you would multiply that by 5 to arrive at a deduction total of $300.

This method is as easy as it gets and makes calculating your home office deduction a breeze.

The regular method is based on adding up expenses you’ve paid to maintain that space, such as mortgage payments, rent, utilities and internet access. The percentage of your home you regularly and exclusively use for your home office will be another variable. To use this method, you will have to do some math, but the total deduction may be higher than it would be using the simplified method.

To maximize your home office write-off, you should run your numbers through both methods. Determine which method will maximize your home office deduction and use accordingly.

One other option, if you rent your home, is to enter into two separate lease agreements with your landlord. One lease with you personally for part of your rent, and the other lease with your business, for the part of your rent that is specifically for the space that is used for your business. In that case, you would not take a home office deduction, but instead, categorize your business rent expense as office rent on the expenses part of your tax return.

Not sure which is best? Contact us to discuss options for how we can support you in maximizing your tax deductions with advice from a tax advisor you can trust, with our support.

It’s important to consider these opportunities carefully when running a business out of your home. If you want to ensure you are getting the most out of your home-based business, start by sitting down with a Family Business Lawyer®, like us. We can help you maximize the benefits and minimize the liabilities of operating your business out of your home and ensure your business operates at its peak in any location.

This article is a service of A. J. Yolofsky, Family Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial and tax systems you need for your business. Call us today to schedule.