The Home Office Deduction Explained – Bert Seither

Bert Seither, a small business specialist

Bert Seither, a small business specialist

It has become more common than ever for entrepreneurs and small business owners to be working out of their homes. With more people using the Internet to conduct business and software like Skype or FaceTime that allow for video conversations from practically anywhere, more self-employed individuals continue to discover the convenience and savings of working from home. There’s also another nice perk – the home office deduction. Bert Seither, who helps small business owners achieve their entrepreneurial dreams, explains how this IRS write-off works.

Business owners have the ability to deduct the use of a home office when it is specifically used for conducting business activities. In IRS terms, this is known as a home office deduction. While the word “home” is part of this term, this deduction can apply to any kind of residence, from studio apartments to mobile homes. Therefore, it can be claimed by homeowners and renters alike. Basically, the amount you can write off is dependent on the percentage of your actual residence that you physically use for business purposes. If the gross income you earn from your business is less than your total amount of business expenses, your deduction will be limited. The expenses you can write off for this may include mortgage interest, insurance, rent, electricity, depreciation, repairs, and even your Internet access when it’s used for business reasons.
Several factors go into how a whole room or area of your home can be deducted as a business expense. First of all, this space must be your principal place of business or an area used for dealing with customers, clients, or patients in-person. It’s also possible to have a separate structure that is part of your home but is not directly attached to it, and this place can be considered part of your home office if you use it for business activities. If you operate a daycare business out of your home, you can also claim it as a tax write-off, even if the area used for the daycare is utilized for non-business purposes at other times.
For tax year 2013, the IRS introduced what it believes is a simpler alternative method to handle the home office deduction in terms of accurately calculating it. Small business owners who do some work at home can claim a flat-rate write-off of $5 per square foot for up to 300 square feet of space in a place of residence. There is a limit to this, though, since the maximum deductible amount is $1,500 when choosing this alternative method.

Because there are two deduction options on the table, Bert Seither says it’s important to determine which route is most appropriate for home-based business operators to take to maximize their deductible amount. The traditional method of calculation normally involves a great amount of recordkeeping and documentation of expenses, which is why the IRS introduced the newer and simpler flat-rate alternative. However, this flat-rate method may not be as beneficial to those residing in areas where the cost of living is higher. That’s why it is vital to proceed carefully when claiming the home office deduction.

Overall, Bert Seither highly recommends researching all possible tax deductions available to you, especially if you are one of the many proud small business owners out there. Deductions are designed to reduce your IRS tax bill and keep more money in your pocket instead of in Uncle Sam’s. Don’t hesitate to find and claim the ones you’re eligible for.