What if you could go to work in your pajamas and get a tax break? One of the growing trends in business right now is telecommuting. Estimates vary regarding the number of people who work from home – either for themselves or for a company – but many put the number in the tens of millions. Those who use their home as an office have advantages beyond the typical tax breaks from buying a home. Here is what you should know about the benefits of a home office that go beyond the casual dress code and ability to make a snack run to the refrigerator with ease.
Using Part of Your Home as an Office
If you work from home, you are using up resources. Set aside some space dedicated to your business functions. (Be warned: to get the tax benefits of a home office you need to be using that space only for business.) Once you have dedicated office space, you can begin reaping tax benefits.
To figure your deduction, you will need to know the square footage of your home or apartment (should be included with closing papers, or you can find out from your landlord). Next, measure your home office. If you have a whole room dedicated to your efforts, you will get a bigger deduction. However, if you have a smaller space, that’s okay, too. Measure around your desk and filing space if you aren’t using an entire room.
Use these numbers to determine what percent of your home is taken up by your home office. If your home office is taking up 40 square feet, and your home has 2,000 square feet, the calculation would look like this: 40 / 2,000 = 0.02. Now you can use the 0.02 to determine your deduction. Multiply 0.02 by the amount you pay each month for your mortgage or rent. If you pay $1,000 a month on your mortgage, the result is 0.02 x 12,000 (12 months) = $240. Then, you can multiply the 0.015 by your heat and electricity. If you spend $200 a month on utilities, that’s 0.02 x 2,400 = $48. Your total would be $288. It doesn’t seem like a lot on it’s own, but there are other home office deductions you can take.
Other Home Office Deductions
When you use your home office, you can take other deductions. You can deduct the equipment you buy, such as a printer/fax or a computer (you can deduct via depreciation if you want), the cost of buying a desk and chair, supplies, and other costs you incur during the year to outfit your home office. It is also possible to deduct the cost of using a cell phone for work, or for having a dedicated phone line in your home office. (If you deduct the phone line, it has to be an additional line – not your regular residential line.) You can also deduct Internet usage. If you pay $39.99 for broadband Internet each month, figure out how much of that is for your business. 85% of my home’s Internet use is for my home business, so I multiply $479.88 (12-month cost) by 0.85 to get $407.90. Not bad – especially when added to my home office deduction and office supplies costs.
If you are a homeowner, or planning on buying a home, understanding the tax benefits of a home office can increase your savings beyond the traditional tax benefits from home ownership. Make sure you save receipts and documentation showing your expenses. If you are in doubt, consult IRS.gov, or a tax professional. With a little thought, you can get a decent tax benefit out of your home office.
Photo: cogdogblog, via Creative Commons 2.0
Miranda Marquit is a journalistically trained freelance writer and professional blogger. She contributes to several personal finance web sites, writing on topics such as budgeting, home loans and mortgages, and investing.
LendingTree is the nation's leading online loan marketplace providing consumers an easy way to shop and compare funding for life's matters. With LendingTree's marketplace, you can connect with multiple lenders that compete for your business. You can also find an array of credit based tools and tips on LendingTree, including free monthly credit scores to help you stay empowered financially.
- 15 Things to Know About Your New EMV Credit Card Chip 5,723 views
- How Do You Compare Personal Loans and Get the Best Deal? 2,586 views
- Review: Top Cards Offering Long 0% Introductory Interest Terms 2,495 views
- Avoiding the 5 Most Common Mishaps People Encounter when Buying a Home 2,300 views
- Should You Give Out Your Social Security Number to Get a Mortgage Quote? 2,065 views
- Three Things in Life that Are Always Worth the Loan 2,031 views
- Your Mortgage GPS: Step-by-Step Directions for Getting a Mortgage 1,445 views