March 25, 2019
Operating your small business from your home can not only improve your bottom line but also pay off in real dividends around tax season. Read on for guidance on tax-deductible expenses you can claim—and can't claim—for 2018.
With the 2018 tax season, the IRS has updated its guidelines for small businesses and the self-employed who work from home.
First things first, is it a true home office? According to the IRS, a home office must be used solely for business purposes. That means any activity of a personal nature—surfing the web, paying bills, watching TV—cannot occur inside your home office.
Whose home office qualifies this year has also changed. Remote employees can no longer claim home office and non-reimbursable expenses from their employer. If you're self-employed, however, you're still eligible to deduct home office expenses.
There are two ways to claim your home office tax deductions in 2018. It's important to note that you can choose one method for 2018 and switch the following year.
The Simplified Method is aptly named and best suited to those with a small home office. HouseLogic explains that all you need is the square footage of your home office—up to 300 square feet—to arrive at your deduction in seconds. Here's the formula:
Home office square footage x $5 = Deduction
For example, if your home office is 300 square feet, your total tax deduction is $1,500 (300 x $5).
By contrast, the Regular Method can result in a higher tax deduction but requires careful tracking of expenses. On the upside, as NerdWallet points out, you can deduct mortgage interest, maintenance, utilities, insurance, and other expenses. If your home office occupies a significant portion of your home, the traditional method may be a better bet. If you'd like to use this method for 2019, start logging those expenses now to save time next April.
If you've decided to go the traditional route, take a look around your home and office because there may be more tax savings than you realized. For a complete list of tax-deductible expenses, download the "Business Use of Your Home" from the IRS. Here are a few of the more surprising expenses that do and don't qualify.
Home office tax deductions are one way to save on overall business expenses. Who doesn't look forward to a refund check? Keep in mind, though, that tax rules are unpredictable and cash back is not a sure thing. The good news for small business owners is that there are a number of other ways to secure the funds needed to grow your business.
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