There are many obvious benefits of working from home. One of the not-so-obvious benefits might be the tax deductions. The IRS offers a home office deduction for people working out of a dedicated home office, whether self-employed or not. There are a couple of catches though, so before we get into the cost-savings aspect, you need to make sure you qualify for this deduction.
Home office deduction qualifications
In order for your office space to qualify for a deduction, there are two main requirements that must be met:
- Exclusivity – The space that is used as your home office must be used exclusively for your home office, and nothing else. That means that if you’re using a room in your house for the office, that room may not be used for any other function, such as watching television, dining, etc.
- Principle place of business – The room that is used for your office must be the primary location where business is conducted. This means that you may conduct business in other locations, such as meeting with clients at coffee shops, so long as you regularly use the space in your house for your business.
How much can you deduct?
Taxpayers are able to choose either the Standard or Simplified method for home office deductions. The Standard method calculates the deduction based on the square footage of the home office as compared to the overall square footage of the home. For simplicity, we will discuss the Simplified Method, as it’s a very straightforward calculation and requires much less paperwork. It would, however, behoove all taxpayers to also take a look at the IRS’ Standard Method of calculating home office deductions and decide which method is in the taxpayer’s best interest.
Beginning in tax year 2013, the IRS allowed taxpayers to use a more simplified version of the home office deduction when deciding how to calculate the amount that could be deducted. The deduction is $5 per square foot, with a maximum of 300 square feet. This means that an office of 250 feet will allow you to deduct $1,250 per year ($5 X 250). SkipTheDrive offers a free telecommuting savings calculator that calculates how much time and money can be saved via telecommuting, as well as how much tax money can be deducted using the simplified method of the home office tax deduction.