how to calculate home office expenses
there are two ways the irs says you can calculate how much of your home constitutes a home office and how much of your incurred expenses are deductible the first way the regular method is to calculate your actual expenses the second way is called the simplified method which is faster but may not yield as many deductions 1 the method that uses an accounting of your actual expenses begins with calculating the following 4 direct expenses are things like painting or repairs only in the area used for business indirect expenses are expenses for the entire home like insurance utilities and general repairs that also benefit your home office 5 to figure out the allowable business percentage of your home area the irs gives two methods 6 the regular method requires to keep accurate records but the irs has a helpful worksheet to set taxpayers on the right path 7 if your expenses are less than your gross income from the business conducted in your house all your expenses are deductible but if your expenses exceed your gross income only a portion of them can be deducted the simplified method was introduced in 2013 to simplify the calculation of allowable deductions for your home office to calculate your deductions with the simplified method you need to know 8 once you have this information you can calculate your deduction with these steps 9 other rules apply that limit the filer s ability to use the simplified method for example if you share the space with another person you can t both deduct the same space 10 other restrictions are listed in publication 587 real world examples of home office expensesas an example consider a freelance writer who operates their own business out of their home they have a dedicated office space which is approximately 200 square feet a cell phone that is only used for work related calls and a subscription to a magazine that provides editorial leads to writers all these items are tax deductible as home office expenses including the 200 square feet of the writer s house since that room is used for business purposes additionally the writer can deduct the ink that they use to print contracts out the full cost of the all in one printer that they had to purchase to be able to send those signed contracts in and any industry related training they complete because the tax cuts and jobs act limited the amount of property tax filers can deduct you cannot use the home office deduction to deduct the full amount of your property tax if it exceeds 10 000 11 there are a variety of expenses that can be deducted when a person works out of their home whether it be as a remote employee or because they are self employed a certified tax specialist can review available deductions and make sure that all items that are being claimed are valid for instance if this freelance writer didn t have a dedicated office space and instead worked out of the coffee shop around the corner from their house every day they wouldn t be able to claim the utility and mortgage associated costs as part of their home office deduction there may be additional deductions available to them like the coffee and donut they purchase each day while working out of the shop 