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You are here: Home / Finance / Working from Home: The Secrets Of Claiming A Home Office Deduction
Working from Home: The Secrets Of Claiming A Home Office Deduction

Working from Home: The Secrets Of Claiming A Home Office Deduction

September 5, 2019 By Cade Hildreth Leave a Comment

Nearly 70% of all small businesses in the U.S. start at home, which is why it is valuable to understand the nuances of claiming a home office deduction.

This is due to obvious reasons (renting office space isn’t cheap), but working from home is a lot more financially advantageous than most people realize. The IRS has rules that allow business owners to write off rent, utilities, equipment, renovations, real estate taxes, and more. In many cases, these tax rules can bag you $1,000 or more come tax time.

The average person can take off a lot of their everyday expenses and alleviate some of the stress that comes with entrepreneurship. You can even have your home office in a separate space from your actual home. How much you can get off your home office deduction will depend on meeting certain requirements and keeping proper documentation.

Establishing Your Business Space

When claiming a part of your home as a business space, it has to count as an “exclusive” business space. This means you can’t throw a desk in the guest room and automatically qualify as a business space. If your space is where you rent out or offer daycare services, then that’s a different story.

Get the permission to use said space for those activities and you got yourself an exclusive business deduction. One other exception to this rule of business use is dedicating the room as a place of storage for supplies or inventory.

Valuing Your Home Office Deduction

You have two options for calculating the business deductions that you qualify for: simplified and standard. Simplified means less number-crunching, as you’re not deducting individual expenses. It only accounts for the square-footage denoted as your business space.

The standard method measures everything you’ve invested in your home business. This includes, but is not limited to property taxes, utilities, cable and internet, repairs, upgrades, and electronics that you can prove are used for business.

Obviously, the potential deductions are greater if you use the standard deductions. Doing so can get complicated and time-consuming. You can review the 8829 Form to learn about what you can and can not deduct.

Comparing the Two Methods

How much time do you have to fill out your taxes? Do you keep track of your expenses consistently? If you’re curious about which method is going to save you time and money, here is what you can expect from each process.

Standard Expense Deduction

Deducting expenses related to your business space falls into two categories: direct and indirect. Direct expenses are purchases like renovations for the room, new office equipment, and furniture. Indirect expenses will include your bills, taxes, and subscription services.

Indirect expenses are set at a hard cap of the percentage of space that your business space takes up in your home. No, you can’t claim an entire living room that also happens to include your desk for freelancing. Direct expenses are 1:1 matches on what was spent.

The story is a little different for the simplified version.

Simplified Business Deduction

As we previously mentioned, the simplified version of business deductions is a basic percentage. While it is easy enough to eliminate the need for a tax preparer, it does have its limitations. You can’t claim more than 300 square feet and you cannot exceed more than $1,500 for a 300 square foot deduction.

Is it worth collecting all your receipts if your office takes up such a small space? Time is money, so if your home office is only a few hundred square feet in a home that is 800+ square feet, you’re more or less running in place for those savings.

On the other hand, if your business does occupy a large area and there are a lot of extra expenses that come with the work, you should probably sit down and do the math.

Potential Caveats to Consider

Remember, if you don’t go for the simplified deduction, you must save copies of all the receipts related to your business expenses. Download any online bank statements and scan bills if you aren’t good at filing mail. In the event you are actually audited, you’ll have proof of all your numbers.

Don’t allow the prospect of an audit prevent you from getting the most from your home office deduction.

Audits generally only happen to businesses that exhibit unusual behavior. It is worth noting that if you’re a homeowner and you decide to file for the standard expenses deduction, you will no longer qualify for capital gains tax exemption when you sell. Those who end up selling their home after living in it for two out of the five years leading up to the sale can save a lot on capital gain taxes.

The capital gains deduction is good for up to $250k in profit, $500k if filing jointly with a spouse. Depreciation is another potential setback for the standard business deduction method. You have to list the depreciated value of your home when calculating your deductions.

This means that when you sell your home, you have to value it at the depreciated value for capital gains taxes. For instance, selling your home with 15% used as a home office space means 15% of your profits are subject to capital gains taxes.

Calculate Your Potential

At the beginning of this article, the choice between simple and standard home office deduction may have seemed easy. After learning about some of the rules and requirements, though, the line gets a little blurry. That’s okay, the average person doesn’t and shouldn’t know tax code that intimately.

This is why it’s better to consult a tax specialist or at least someone who has experience running a business out of their home. If you have any questions, contact us anytime. We’ll answer to the best of our knowledge and love hearing feedback from our readers.

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“As an LGBTQ+ entrepreneur, real estate investor, former USA Rugby Player, and fitness fanatic, I’ll teach you what your parents and teachers should’ve taught you, but didn’t know themselves.” -Cade Hildreth

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Because it’s the New Year, let’s talk about ch Because it’s the New Year, let’s talk about change...

For a long time, I’ve thought about top surgery. I remember when I was 6 or 7 years old when I wanted to run around outside on a hot, sunny day with my shirt off…and I first saw my parents… hesitate. Ughh. 

It wasn’t their fault but I still remember that heart wrenching feeling. To their credit, they ultimately said, “Ok, go do it!” While I did “do it”, I remember the feeling of shame that crept in.

Over the years, being in affirming sporting/rugby circles helped suppress the urge to get top surgery, but it never quite “stayed down.”

So last summer I got keyhole #topsurgery. I’ll talk about recovery in another post because it was definitely weird to not strength train for months.

But in THIS post, I want to share two things:

1. I am SO grateful to my wife Erin for being the supportive and growth oriented partner that she is. 🥰🙏❤️ 

She is now following her call to get a divinity degree and she’s already working in ministry as a Pastor in Training at an incredible, inclusive Presbyterian church here in Virginia. I am grateful to her for supporting me as I become more and more of who I am—and I’m enjoying watching her do the same! Love you, babe!

2. Second, I’m grateful to get to share who I am with my family. This summer we took a trip to Madden’s resort in MN to celebrate my parent’s 50th wedding anniversary. (It was actually their 52nd, because we had to postpone it twice due to Covid.)

I was nervous to be in the pools and lakes around them, but I could feel it was my only choice because I knew I wanted them to “know me”. And, how could that happen if I “hid me”?

Ultimately, I have to tell you…it was freeing to be me, as I am, who I am. 

I had the BEST time splashing around and biking and goofing around with my wife, niece, nephew, & sister. 🌊🏖🐟

So, I suppose, this is a gratitude post to thank those who have supported me over the years as I become more and more of who I am. 

Top of that list is my wife, Erin, but there are countless others. ❤️

If you’re reading this, thank YOU for being one of those people in my life too. I am deeply grateful. 🥹
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#lgbtqfamily #nonbinary
How to set a boundary? 🤔 . . . . #lgbtqia #lgb How to set a boundary? 🤔 
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#lgbtqia #lgbtqcommunity #emotionalhealth
What do you do if you’re telling a past story ab What do you do if you’re telling a past story about someone who has transitioned? 🤔 Share a 💯 if you agree ➡️🏳️‍⚧️🏳️‍🌈
7 things I got clarity on in 2022: 1. Good and b 7 things I got clarity on in 2022: 

1. Good and bad are labels. All things are experiences. 

2. Maturity is taking full responsibility for oneself. 

3. Having a loving, conscious relationship with myself is a core value. 

4. Emotions do not mean that anything has to be done. 

5. When I am in congruence with what I want, I have it. 

6. I have permission from myself to stop doing anything that doesn’t lead to my peace and empowerment. 

7. Stepping toward emotions and being able to feel them is a superpower. It determines the quality of my life. 

(Are there any above that you’d like me to further explain?)
 
Most importantly, which # above resonates with you? ⬆️

Happy New Year, y’all! 🎊🥳
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#lgbtqcommunity #lgbtqiaplus #lgbtsupport #nonbinary #trans #selfgrowth
Interview with Jenny Nguyen, Founder of the Sports Interview with Jenny Nguyen, Founder of the Sports Bra—The World's 1st Bar to Only Play Women's Sports - shorturl.at/doGHZ

I'm excited to introduce you to today's #podcast guest, Jenny Nguyen, who is a professional chef, elite athlete, and entrepreneur.

I invited Jenny onto the podcast because she has done something extraordinary that is long overdue: She has opened up a sports bar that exclusively plays women's sports!

Despite extensive research, Jenny hasn't found another sports bar worldwide that ONLY plays women’s sports.

Given that it's nearly 2023, this is mind-blowing. As a lifelong athlete, I find her vision compelling and inspiring.

Aptly called the "The Sports Bra", the venue is putting Jenny's culinary skills on display alongside women's sports worldwide.

The Sports Bar has taken its mission a even further by partnering with and elevating other local, women-owned businesses.

Specifically, it:

1. Sources its grass-fed beef from @CarmanRanch, an ranch run by Cory Carman, a third gen rancher out of Wallowa, Oregon).

2. Sources its alcohol from Freeland Spirits, an all-women owned and operated distillery out of NW Portland.

3. Has furniture built by @girlsbuild_org, a non-profit organization headed by @ktmhughes in Portland, OR, that teaches carpentry and construction skills to young girls as a path to empowerment.

Since opening the Sports Bra this April, people have come from ALL over the U.S. and the world to experience it—including many professional female athletes.

To learn more about Jenny as she makes history, features women's sports, and elevates women-run businesses, listen to the episode here:

shorturl.at/doGHZ

Or, you can check out the Sports Bra at:

@thesportsbrapdx
TheSportsBraPDX.com/

Have you heard of the Sports Bra or been out to experience it in person?

#lgbtqiaplus #womenownedbusiness #lgbgtqia #lgbtqcommunity #womenssports #womeninsport
Over this recent holiday stretch, we… - enjoye Over this recent holiday stretch, we… 

- enjoyed some quiet time at home
- got a sauna delivered (but not yet installed)
- decorated for the holidays
- baked a bunch
- visited our favorite farm
- did some sight seeing
- and perhaps, most importantly, survived the cold snap along with our feather friends (who lived in the garage for a few days so we could heat them with a space heater) 🥶🐔

How have the holidays treated you…and did you get hit by the winter storms? ❤️🎁☃️❄️
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