Most small business owners find themselves working from home, so why not set up a home office?
Setting up a home office is sometimes rumored as a bad idea and a good way to get audited.
If you read the IRS guidelines, which have changed over the years, you will be confident in taking the home office tax deduction.
It doesn’t matter if you own or rent, you can set up a home office for a tax deduction. You now have two choices for a home office deduction, you can take actual costs or the standard allowance per square foot.
Both methods require you to measure your home office space and total home in square feet.
The standard home office allowance is the easiest and the best way to not have to worry about paying taxes down the road if you sell your home for a large profit.
If you have a large space, you may want to consider taking the actual cost method. This method allows you to deduct a percentage of all your household expenses, mortgage interest, taxes, utilities, and overall home repairs and improvements. Sometimes, you may have to repay part of this deduction if you sell your house for a large profit later on down the road, so check with your tax professional to see if this may apply to you.
Now the fun part, deciding how to set up your home office area. According to the IRS, the area needs to be exclusive, so find a space you can dedicate just for business purposes. This doesn’t have to be a separate room, just an exclusive space that you use to conduct your administrative business or use for business storage.
The home office deduction can help lower your taxable income. If your business isn’t profitable, then the home office deduction gets carried forward to the next year, until you use it up.
Some old myths are still out there about needing a separate room with its own door and can’t share the room with anything personal, but that is not true with the new tax laws. The space just needs to be separate and dedicated, it can be the corner of a room, a closet, a separate room, or part of your basement for example.
Take the plunge and set up your home office today!
