When it comes to filing your taxes, you want to make sure that you’re doing everything right, but also that you are being as efficient as possible so that you aren’t losing out. If you have a home office, for example, you may be eligible for some tax relief, so read on to find out how to make the most of it.
As a self-employed person, deductions and expenses could help you save a little as you can offset some of your costs against your income to reduce your overall bill. There are limits, though, and the rules on deductions changed in 2017, so it’s important to inform yourself properly on the latest regulations.
What are home office expenses?
If you work from home, you may incur expenses related to your job which can then be deducted when calculating your tax bill. This might include things like utility bills or rental or mortgage payments.
What can I deduct?
If you pay for services and utilities, such as a work phone line, for the sole purpose of your job, the full cost of these can be deducted. The same goes for office supplies and equipment.
The office space itself, however, only qualifies for deductions if it meets the following criteria:
- It is used exclusively and regularly as your principal place of business
- It is used exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business
- It is a separate structure that is not attached to your home that is used in connection with your trade or business
- It is used on a regular basis for certain storage use
- It is used as a rental for your business
- You use your home as a daycare facility
How do I calculate my home office deductions?
There are two ways to file for home office deductions: the standard way and the simplified way. The standard way involves calculating all your home office expenses and keeping detailed receipts in case the IRS want to audit you.
There are lots of things to consider here, for example, if the space you use for your home office occupies 10 percent of the floor space of your house, then you can claim on just 10 percent of your utility bills, not the whole amount. Also, if your expenses are greater than your income, you won’t be able to claim on the full amount.
How does the simplified method work?
Alternatively, you can use the simplified method, which involves calculating your home office’s square footage and multiplying that by five dollars. This method has a maximum of 1,500 dollars, but can be useful if you are pressed for time or don’t have accurate records to hand.