Working from home, whether as a self employed individual, small business owner, or freelancer is continuing to be common for people all over the country. This arrangement has a lot of benefits for office workers, but the Home Office Deduction might be one benefit you're not aware of yet. There is a lot that someone should know and understand about this deduction, so let's dive in.
The home office deduction is a common tax deduction that you could use to offset some of the costs that come with working from home. It is generally designed to allow you to deduct certain home expenses when you file taxes. If you itemize your taxes each year, it can directly reduce your taxable income, which can reduce your tax bill.
With the rise in remote workers over the last few years it's natural to wonder if the home office deduction applies. Unfortunately, you cannot qualify for the home office deduction if you are an employee of another company through at least 2025 due to the Tax Cuts and Jobs Act. The home office deduction applies to self-employed individuals and independent contractors, but they must meet the following criteria.
One of the most important factors that needs to be considered is how space is used. If you have a flexible space in your home that you may use for work, but also use for meals or entertainment, it will probably not qualify for the tax deduction. The space does not necessarily need to be an entire dedicated room, but there needs to be a defined space on your property that is only used for work and professional purposes.
Another factor that can determine your eligibility of this deduction is if you use the space as your primary place of business. If you work solely out of the home, you should be able to deduct the costs associated with the space from your taxes. However, if you only work from home on a part-time basis, you will not be able to deduct these costs from your tax return.
If you do believe that you qualify for this deduction off of your tax return, it is important to 
calculate the deduction the right way. If you do qualify, the calculation is rather simple. You will want to take the square footage of the office space and divide it by the total square footage of your home.
You will then take this percentage and multiply it by the total costs of owning or renting the home. This can include the costs of mortgage interest or rent, repairs, utilities, and some maintenance costs.
As an example of this, if your home office is 100 square feet and your total home is 2,000 square feet, the home office will account for 5% of your total home. If your total home housing bills are $20,000, you can deduct up to 5% of this amount, or $1,000. This $1,000 figure will then be used to reduce your total taxable income.
It is important to know that you are not permitted to deduct more than 300 square feet of space. This can limit the total dollar amount that you are able to deduct each year. Further, your total tax deduction cannot exceed your business income before the deduction, if you are a small business owner.
If you do believe that you will qualify for the home office deduction, it is very important that it is calculated properly. Those that do claim this deduction can be subject to IRS audits and deducting the wrong amount could result in various tax penalties. Because of this, having a CPA and tax professional by your side is very important.
When you do hire a tax professional, the first thing they will do is confirm your eligibility for the deduction. This will be done by assessing your home office and evaluating where you work and spend most of your time. Based on this assessment, they can determine whether you do qualify for this deduction.
Once the eligibility of this deduction has been determined, your CPA will assess what your total deduction can be. This can be done by calculating the percentage of your home that is dedicated to the home office and multiplying it by the qualified expenses. This will ensure you are calculating the right amount for this deduction, which can ensure you do not run into issues with the IRS later.
If you're eligible for the home office deduction, let the team at MB Group help. We're here to assist you with all things tax so you can lower your tax bill and rest easy. Contact our team today.
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