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Are You Forgetting One Crucial Money-Saving Tax Deduction?

Are You Forgetting One Crucial Money-Saving Tax Deduction?

Taxes – the bane of every small business and freelancer out there trying to make ends meet. If it’s not quarterly estimated tax time then it’s annual tax time, and don’t even get us started on sales tax if you sell physical products.

Most small business owners understand that business expenses equal deductions in your tax bill. While you can’t entirely get out of paying your taxes you can certainly help lower how much you owe to the government. The more deductions you take the better off you’ll be.

We found through surveying Outright’s aggregate data though that small business owners consistently fail to take one deduction – the home office deduction.

This could be because the home office deduction has gotten a bad rep as audit bait for the IRS or because small business owners find the instructions overly complicated. Either way, if you need to save money on your taxes, it’s time to take a second look at this deduction. With Quarterly Estimated Taxes coming due on September 17th, there’s no better time to save yourself a little more money.

Who Can Take the Home Office Deduction?

The IRS doesn’t make the home office deduction easy. Make sure you fit these criteria:

  • You use the office regularly and exclusively for business – You don’t just use it occasionally and you don’t do anything in there that isn’t business. No home office/kid’s playroom allowed!
  • Your home is your principal place of business – If you rent office space or own a brick and mortar premises somewhere else, you can’t also claim a home office.
  • You do business in a freestanding structure on your property – Say you create metal sculptures in a shed or work in a separate storage building. You can count that as your home office.

How Much Can I Deduct?

IRS Form 8829 helps you determine how much you can deduct for office use of your home. It will ask you to measure the area of your office by the total area of your home to come up with a percentage of your home used for business. From there, you can deduct that percentage of your mortgage or rent payment monthly.

For example, you live in a 1,000 square foot apartment and use a 100 square foot room as your office. You can deduct 10% of your rent payment monthly as your home office deduction.

Why Take the Home Office Deduction?

Aside from saving money, it can lead to many different deductions. For instance, you can start to deduct a portion of your utility bills like water, electricity, and Internet. Also a portion of your homeowner’s insurance can be deducted. The same formula applies – you can only deduct the percentage of these utilities and other indirect expenses associated with your home office.

For more info, check out CPA Chris Peden’s excellent article Making Sense of the Home Office Deduction.

This guest post is brought to you by Outright, the simplest way to manage your small business finances and make tax time less taxing. Sign up today!

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About Jennifer Dunn

Jennifer Dunn owns Social Street Media, where she writes about freelancing and small business for various online publications. She is the community manager at GoDaddy Online Bookkeeping, and her long-standing life goal is to learn something new every day.
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