There is great news for entrepreneurs who run their business from the comfort of their couches.! They can now deduct a certain part of their expenses from their tax returns and save a little extra this tax season.
The tax credit goes by the name of home office deduction, which can be availed by qualifying taxpayers to reduce the amount of their taxable income.
Let’s find out all about this credit and see how it might help you get a significant tax break.
Who is eligible?
Taxpayers who conduct their businesses from their self-owned or rented home can avail of this tax credit.
What expenses can be deducted?
Home expenses like insurance, mortgage interest, utilities, repairs, maintenance, depreciation, and rent, etc. can be deducted on attaching supporting documents while filing tax returns.
Is the tax deduction available to all?
You would be required to meet certain pre-decided requirements in order to reduce these expenses as deductions. Usually, a part of such expenses are deductible, and the deductible amount is limited.
How does this tax credit define a home?
You would be eligible to claim this tax credit in the following conditions: –
1. If you are conducting your business in a house, apartment, condo, mobile home, boathouse, etc. — owned or rented.
2. If you are conducting your business in an area attached to your self-owned or rented home like a garage, barn, studio, or greenhouse.
3. This provision is not applicable to expenses incurred in conducting your business in properties like hotels, motels, inn, or anything alike.
What are the basic requirements to qualify your home for this deduction?
1. You should have an exclusive portion in your home that you specifically use for conducting your business regularly. This could include an extra room where you regularly and exclusively conduct your business activities. A point to keep in mind is that this tax deduction does not apply to the whole place. It applies only to expenses incurred on this specific portion of your home, which is used for business.
2. You can claim this tax deduction on expenses incurred on your principal place of business. There might be a case where you have two places from which you operate your business. You execute all the administrative and managerial activities at home, as these cannot be conducted at any other place, and perform other activities outside your home. There are good chances that you would still be eligible to receive this tax deduction.
Does a structure not attached to home eligible for this deduction?
Yes, you can avail of this tax deduction on structures not attached to your home. You can do if this particular structure is exclusively and regularly used for conducting your business activities.
How can you calculate the amount of your home office deduction?
If you qualify for a home office deduction then you may calculate the deductible amount in any one of the following ways: –
1. Using the simplified method
Under this option, the rate of deduction is $5 per square foot of your home area, which is used for business. The maximum area that you can cover is 300 square feet, and hence, the maximum deductible amount cannot exceed $1500 under this method.
2. Using the regular method
Under this method, the amount of the deduction is based on the percentage of your home engaged in your business. If you use full or part of your room to carry out your business activities, then you would be required to find out what percent of your home is used for carrying out such activities. This will help you in calculating all the indirect expenses incurred on such an area. Rest, all direct expenses will be deductible in full.
So, it’s time for you to save big on your taxable income by benefiting through this tax deduction. The tax deduction will help you take benefits for expenses you incur to conduct your business from home. So what are you waiting for? Contact your MyTaxFiler expert and get to know in detail about all the aspects of home office deduction and make the most of this tax benefit.
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