Maximizing Tax Deductions for Your Home-Based Business

The rise of home-based businesses marks a significant shift in how Americans work, offering convenience and flexibility by eliminating the daily commute to a traditional office. Along with these benefits, home-based business owners can also take advantage of tax breaks, specifically the home office deduction. Here’s what you need to know to ensure you’re maximizing your deductions while staying compliant with IRS regulations.

Home Office Deductions: Who Qualifies and What You Can Claim

Under the Tax Cuts and Jobs Act of 2017, W-2 employees cannot deduct unreimbursed employee business expenses, including the home office deduction, for tax years 2018 to 2025. However, business owners, freelancers, gig workers, and W-2 employees with a qualifying side hustle can still benefit.

To qualify for the home office deduction, you must meet the following IRS requirements:

• Exclusive and Regular Use: You must use a portion of your home exclusively and regularly for business.
• Principal Place of Business: Your home must be your principal place of business or a place where you regularly meet with clients or customers.

Exclusive and Regular Use

The IRS defines an office-in-home as a separate area used exclusively for business activities such as meeting clients, maintaining books, and other business-related tasks. The space can be part of a house, apartment, condominium, mobile home, boat, or a separate structure like a garage or studio.

Your home office must be primarily dedicated to work, avoiding personal activities in the space to maintain eligibility. Minimal personal activities, akin to those in a traditional office, are permissible. For some business activities, like in-home services or storing inventory, the exclusive use requirement may not apply.

Regular use is determined by the facts and circumstances of your business activities. Consistently working in the home office for several hours a day typically meets the regular use test, but occasional use might not.

Principal Place of Business

To satisfy the principal place of business test, your home must be the primary location for your trade or business activities. This includes where you perform the most important business tasks and spend the majority of your business time. If you also conduct business outside your home, you may still qualify as long as no administrative or management activities occur at another fixed location.

Types of Deductible Expenses

Home office deductions can be calculated using either the simplified method or the regular method.

Simplified Method

• Based on the percentage of your home used for business.
• Deduct $5 per square foot, up to 300 square feet.
• Example: If 200 square feet of your 2,000 square foot home is dedicated to business, the deduction is 200 x $5 = $1,000.

Regular Method

• Also based on the percentage of the home used for business, but with no square footage limit.
• Allows deduction of actual expenses, including depreciation, mortgage interest, insurance, maintenance, rent, repairs, and utilities.

Taxpayers can choose either method for a given tax year but must stick to their choice for that year. They can switch methods in subsequent years. Use IRS Form 8829 to calculate the deduction for expenses related to the business use of your home.

Call Us Today

Determining eligibility for the home office deduction and selecting the right method can be challenging. If you have questions about qualifying, what you can write off, or which method suits your tax situation best, contact us today to schedule a consultation. We can help clarify your options and ensure you maximize your deductions while remaining compliant with IRS regulations.

Contact us today to schedule an appointment:

• Email: [email protected]
• Phone: (888)-450-7999
• Website: www.BellehLaw.com

Let us help you navigate the complexities of tax deductions for your home-based business and optimize your tax strategy for success.