The IRS offers a simplified home office deduction for those who prefer a simplified approach. Instead of calculating actual expenses, you can use a standard deduction based on the square footage of your home office. As of the last update in 2022, the rate is $5 per square foot, up to a maximum of 300 square feet.
Simplified Method
In 2021, the home office you are able to claim $5 per square foot of home office space with a limit of 300 square feet. So, the maximum deduction you can claim if you use the simplified method is $1,500 per year.
An individual is not entitled to deduct any expenses of using his/her home for business purposes unless the space is used exclusively on a regular basis as the “principal place of business.” The IRS applies a 2-part test to determine if the home office is the principal place of business.
The home office deduction, calculated on Form 8829, is available to both homeowners and renters. There are certain expenses taxpayers can deduct. These may include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
Simplified method. Instead of tracking all your actual expenses, this method allows you to claim a deduction equal to $5 per square foot for the area used as a home office, up to a maximum of $1,500 for the year. This is much easier than gathering all the records required for deducting actual expenses.
Calculating Your Internet Deduction. Internet expenses associated with your home office are deductible on the “Utilities” line of Form 8829. Expenses associated with an office in the home either are considered a direct expense or an indirect expense.
Regular method - You compute the business use of home deduction by dividing expenses of operating the home between personal and business use. You may deduct direct business expenses in full, and may allocate the indirect total expenses of the home to the percentage of the home floor space used for business.
Say your home office occupies 10% of your house. That mean you can deduct 10% of your utility bills (electricity, water and gas), mortgage payment or rent, property taxes, mortgage interest, homeowners insurance, repairs, and maintenance.
As a homeowner, you're able to claim a portion of the mortgage interest (not the principal) that you pay on your home against your business. If 10% of your home is used for business, then you would claim 10% of your yearly mortgage interest on Form 8829, and report the remaining 90% on Schedule A.
What can I deduct for cell phone use? You can 30% of the data, messaging, and talk costs related to business. ¹ To deduct the expense, you would need to calculate the business-use percentage of the cell phone on a month-by-month basis.
Utilities, phone and internet
Utilities: If you own or rent a brick-and-mortar business or office space, you can deduct 100% of the necessary utilities such as gas, electricity, trash and water. For those claiming the regular home office deduction, you can only subtract the portion used for business.
Mortgage interest
Over the entire life of your loan, you can deduct interest paid on up to $750,000 of your principal balance if you're single or married and filing taxes jointly. If you're married filing separately, you may deduct interest paid on up to $375,000 each. There are some exceptions to this.
To qualify for the deduction, you need to meet four tests. You can deduct the expenses related to your home office if your use is: • Exclusive, • Regular, • For your business, and • Either you principal place of business, used regularly to meet with customers, or a separate structure.
Residential Rent
If you use part of your home for your business, you may be able to deduct a portion of your rent as a business expense. This is known as the home office deduction. To qualify for this deduction, you must use a specific area of your home exclusively and regularly for your business.
If you use a home office for your business, you may be able to deduct a portion of your housing expenses against business income. There are two ways to deduct home office expenses. Simplified method. You can deduct $5 per square foot of your home that is used for business, up to a maximum of 300 square feet.
For example, pretend you use your internet for client communications 40% of the time, and for Netflix, TikTok, and online shopping the other 60% of the time. You can only write off 40% of your internet bill.
The average homeowner generally can't claim home repairs as tax deductible. However, businesses, sole proprietors, and rental property owners can deduct expenses for repairs and maintenance of their property and equipment, although the average homeowner can't generally claim a tax deduction for these expenses.
To determine your salary, you need to first estimate your company's annual gross revenue and subtract all operating costs, such as rent, employees' salaries, inventory and supplies. Make sure to set aside extra to cover emergency expenses or business debt, such as payments for a small business loan.
As a homeowner, you'll face property taxes at a state and local level. You can deduct up to $10,000 of property taxes as a married couple filing jointly – or $5,000 if you are single or married filing separately. Depending on your location, the property tax deduction can be very valuable.
You can qualify for a cell phone tax deduction from cell phone charges incurred when the mobile phone is being used exclusively for business. There is not an IRS cell phone deduction for self employed people, exclusively. However, you can also deduct additional business expenses that you incur.
If you do work from home, you may be entitled to some normally unavailable tax breaks. Your biggest savings will probably come from the home office deduction. This allows you to deduct some of your housing expenses, like your rent, utilities, cleaning service and repairs.
Electricity and Gas Write-offs
The amount of the write-off for these utilities is determined by the percentage of the home that is used for business purposes. For example, if 20% of your home is used for business, you can write off 20% of your electricity and gas costs.