Tax Hacks for Online Entrepreneurs: Leveraging Home Office Deductions

Want to maximize your savings while working from home?

The home office deduction is a great way to do this!

But are you concerned about taking the deduction because you don't understand it or have heard it will automatically trigger an IRS audit?

Well, let's bust that myth.

Let's dive in to the info!

Contrary to popular belief, taking advantage of the Home Office Deduction for your online business does NOT automatically increase your chances of being audited. I get it...even as a tax preparer I used to be one of those who would not tax the home office deduction because I thought the same thing. But then I looked into it a lot more. So don't make the same mistake as me. Don't miss years of taking this legitimate tax deduction for your business. 

First of all, even though many people are working from home these days, if you are only a W2 employee, these deductions don't apply to you. You need to have a side business of some sort, with a profit.

The biggest thing to keep in mind with any tax deduction is to document your expense by keeping good records so you can confidently maximize your tax benefits. 

There are two methods for taking the home office deductions

Simplified. It’s just that–simple. Take $5 per square foot, up to 300 square feet for a maximum deduction of $1,500. No records, no receipts. This does not take depreciation into account, so you don’t need to worry about depreciation recapture.

Standard. Calculate your business use percentage and take that percentage of your actual home expenses (mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent). With this method you DO need to keep all your documentation and you do need to recapture the depreciation when you sell your home.

There are a couple things to be aware of when taking this deduction.

The term "home" for purposes of this deduction Includes a house, apartment, condominium, mobile home, boat or similar property.

Generally, there are two basic requirements for the taxpayer's home to qualify as a deduction: 

There generally must be exclusive use of a portion of the home for conducting business on a regular basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business. 

The home must generally be the taxpayer's principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.

So don’t let your taxpayer tell you that you shouldn’t take the home office deduction or that you don’t qualify if your home is not your principal place of business. 

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