There’s good news for those who work from a home office: There are numerous tax deductions that can increase your refund. The key is to find them all and enter them appropriately when you file taxes. Here’s what you need to know to maximize your refund with home office deductions.
The home office deduction
This deduction has been the subject of much confusion among those who work from a home office, but the IRS has tried to simplify things somewhat in recent years. Before 2013, homeowners had to go through burdensome calculations to arrive at what percentage of basic necessities — such as mortgage, insurance, and utilities — could be attributed to their home office. Current rules include a much more basic calculation. (That sound you hear is the relieved exhale of homeowners across the nation!)
- There are two rules for those who run their own business:
- Your home is your principal place of business.
- You use a particular area of the home exclusively for that business. For instance, if you have an extra room in your home that you have turned into an office that is regularly and exclusively used for business, that space counts as a tax deduction. But if you use a corner of your living room as an office, that doesn’t count.
- If you work from home but you work for someone else, there are two additional rules: The use must be for the convenience of your employer, and you cannot rent any part of your home to your employer and use that rented area to perform services for the employer. In addition, if the use of a home office is merely helpful, but not required, it is not eligible for the deduction.
The simple deduction allows you to claim $5 per square foot of your dedicated office space, up to 300 square feet. If you believe that your total deduction might be more than the $1,500 maximum this simplified deduction offers, you might have to dive into the standard (and more difficult) calculations.
Work-related expense deduction
Though you can deduct work expenses, if you are employed by someone else it is usually best to ask for reimbursement from the employer — it saves you time and hassle, not to mention helping alleviate the possibility of an audit. However, if you are self-employed that buck stops with you (literally), and so you can deduct any reasonable expenses. This includes everything you can think of that relates to work: subscriptions to trade journals, computers, professional fees, printer cartridges and paper, even the pens in your desk drawer.
The list of what you might be able to claim is impressive. Staples has compiled a list to get you started, but there might be some options outside of these; talk to a tax professional to be certain of what you can include.
Other deductions that matter
When it comes to deducting business expenses on your tax return, you should document everything — and we do mean everything. For instance, if you give gifts to your clients, you might be able to claim up to $25 per person on your taxes. Do you attend conventions or trade shows? The costs you incur might give you a tax boost. Do you pay for promotions or advertising? Those business cards suddenly matter even more.
Many people who work from home forget the little things. How about the cost of that Internet connection? What about the interest paid on your business credit cards? You can even deduct the cost of postage — yes, postage stamps are now worth more than 49 cents if you are using them to send mail for your business.
And that’s just a partial list of what you might be able to deduct!
There are two points to remember. First, save everything. Never let a single receipt go into the trash can. Request receipts for things that you might not have considered before, such as that toll booth fee on the way to the convention. Having a strong paper trail will help you figure out exactly what you can deduct, and can be incredibly valuable if you get audited.
Second, always talk to a tax professional about your home office deductions. Though some are quite straightforward, there might be tax loopholes that the pros can find for you that will save even more money on your bottom line. Besides that, a pro can help ensure everything is accurate before you send that return to Uncle Sam.