Simplified vs Actual Home Office Deduction: Which Saves More
One of the most common missed deductions for small business owners is the home office deduction. There are two ways you can claim this deduction, and I’m going to show you how you can get the MOST out of the deduction to keep more of your hard-earned money.
What is the Home Office Deduction?
The home office deduction is for self-employed individuals who use part of their home exclusively for business. SO, if you are set up taking client calls with that cute wallpaper background you picked out and racking up hours working on client work in that cozy home office you created - this deduction is for YOU!!
Who can take the home office deduction?
If you are a sole proprietor, self-employed business owner, and/or contractor who has a space in your home that you use exclusively for work, you can take this deduction!
So this means there needs to be a desk, and it must be obvious that it is an office. If you work at your kitchen table or your living room couch, I’m sorry, but you can’t deduct those spaces (even though they are great places to work from - I mean, I am writing this from my kitchen table right now).
NOTE: if you are an Scorp owner paying yourself as a W2 employee - you can take this deduction through something called the Accountable Plan where you reimburse yourself for it monthly
Which Home Office Deduction Method Saves More Money?
There are two ways you can calculate the home office deduction, but which method is going to rack up the most savings for you?! Let’s break it down.
Simplified Method
Now there is a reason why this is called the simplified! It is super SIMPLE. You are going to take the square footage of your office space x $5.
Example: If your home office space is 100 sq ft, you would get $500 for the simplified deduction.
That is still a great savings for the amount of effort you put in. The kicker here is that it is maxed out at $1500.
Keep reading to hear how you can save even more!
Actual Method
While this takes a wee bit more effort on your end, you can almost ALWAYS get more from this method.
With this method, you will take the portion of your total home expenses (think rent, utilities, insurance, etc) to the square footage of the office space.
Example: let’s say your total home square footage is 1000 sq ft and your office space is 100 sq ft - you would get to take 10% of all of your expenses for your home. This adds up FAST.
PSST - this is where my nifty Home Office Deduction Calculator comes in! Plug in all the info & get your deduction.
NOTE: If you choose to do the actual method, you have to be sure to fill out form 8829 with the IRS when doing your taxes (you can share a screenshot of the filled-out home office calculator with your accountant or if you DIY just be sure to fill out the right form.)
What can you deduct for your home office space if doing the actual method?
If you own your home - your mortgage interest & taxes (not the full mortgage payments)
If you rent - your rent payment
Utilities, Trash, Insurance, Internet, etc!
Plug in your home office sq foot, home sq foot, and watch your savings calculate.
Just look at the difference when using this calculator in the top right corner, even made-up numbers (and who only pays $1250 in rent these days).
““It was actually so easy to use. It clearly laid out numbers I hadn’t been considering and helped uncover deductions I was missing.””
Wondering how to calculate the square footage for your home office deduction?
Grab a tape measure! You are going to measure length and width in feet using a tape measure, then multiply the two numbers together. (let’s say you get 10ft and 14 ft - the square footage of your office space is going to be 140).
(If you aren’t sure what the square footage of your home is - if you own, look up your home on Zillow, and if you rent, you can typically find it in your lease or ask your landlord!)
Important things to do when you plan to take the home office deduction:
Take a photo of the office space to store for proof
If doing the actual method, keep receipts for rent, utilities, insurance, mortgage, etc
Calculate Your Home Office Deduction & Lower That Tax Bill!
So the verdict? The highest savings are going to come from doing the actual method (there’s a reason they make it difficult to calculate… because it saves you MORE).
Good case scenario - take the simplified deduction, it is better than nothing!.
Best case scenario - grab my home office deduction calculator and keep more of your hard-earned $$$.
The home office deduction is one of the easiest ways to lower your tax bill. With the easy-to-use Google Sheet calculator, you can use it year after year to save big!
