If you’re a business owner working from home and you’re getting your tax documents together right now, you may be wondering if you should take the simplified home office deduction. With the new deduction, you get up to $1500 and you don’t have to keep track of or submit actual expenses. Sounds pretty good, but is it as good as it sounds? Forbes has some helpful tips as you’re considering it.
To calculate how much you’d receive with the simplified home office deduction, you’d multiply the square footage of your home office space (space used exclusively and regularly for your business) by $5. There’s a $1500 cap, so if you have a large office, you can’t claim it all.
With the actual expenses method, you would add your rent/mortgage interest, renter’s/homeowner’s insurance, and real estate taxes and utilities, and then multiply that number by the percentage of your house that you’re using exclusively and regularly for your business.
With the simplified method, you do get to separately deduct your mortgage interest and real estate taxes if you’re itemizing.
If you’re using a large portion of your home exclusively for your business, you’ll probably do better with the actual expenses method, due to the $1500 cap. If your home office is tiny, you’ll probably come out better with the simplified method.
To see the details about both methods, check out IRS Publication 587, Business Use Of Your Home.
If you have questions, or if you need help running the numbers both ways to see what’s better for you, give me a call at 864-836-3136.