It’s easy to see why many people would prefer to work from home. Employees, working from their home office, can take initiative to manage their own time to fit their needs. People who work from home can step away from the computer, no meter running, and conversate and break as they need to. But working from home does come with some financial implications, particularly if you work out of a home office.
Because of its many benefits, more and more people are working from home and telecommuting to work. Employers are starting to see the efficiency and morale benefits of flexible work schedules. In fact, even business owners are seeing more opportunities to work from home. Every Happy Tax franchise owner works from wherever and whenever they want. But there are a few things to know before turning your home into an office.
The IRS allows you to deduct a part of the expenses for your home if you use it for business purposes. This is true regardless of whether you own or rent, and if you qualify you can save a lot of money on your tax liability. However, there are a few critical factors to consider before listing your home office as a business expense on this year’s tax filings:
- Regular and Exclusive Use
If you use a portion of your home regularly for business purposes, it still may not qualify as a home office. In order to qualify, your home office must be used exclusively for business purposes, such as being your principal place of business or a place where you meet clients.
- Amount of Deduction
There are two options for calculating the deduction allowed for your home office: the simplified option, or the regular method. Under the simplified option, simply multiply the square footage of your office space by $5 to find the amount you’re entitled to deduct. Under the regular method, you use actual costs to determine the amount of the home office deduction. This may include mortgage interest, rental payments, taxes, and utilities. Because there are several factors to calculating how much you can deduct for a home office, it’s best to consult a professional.
- Self-Employed or Employee Status
The IRS applies different rules to home office deductions for employees and self-employed individuals. In order to make sure you’re complying with all of the tax code’s requirements regarding deductions for home offices, be sure to review your situation with a licensed tax professional.