Many people fail to take the home office deduction for fear of being audited, or because it’s just plain hard to calculate if you don’t use the newer, simplified method. However you compute this deduction, it’s a great way to save some cash.
To qualify for the deduction, your office space must be used regularly and only for business. If you work for someone else, there has to be documentation — it could be an email from a supervisor — that your work at home is required as part of the job and is for the employer’s convenience. In addition, employees can’t take the deduction if they rent any part of their home to their employers and use the rented portion to perform work for the employer.
If your use is legitimate, you can deduct a proportionate amount of a number of expenses, including insurance, repairs, utilities, services, and depreciation, which can really add up. Or you can use the uber-simple method of multiplying the square footage of the office by $5 for your total deduction. Check IRS Publication 587 for details.
And, better yet, if the home office is your base of business, you may get additional deductions from your business income, such as mileage for driving to and from your clients’ locations because now it’s considered a business expense rather than commuting.
If your neighbors, coworkers, family or friends are looking to buy or sell, your referral is much appreciated.