Office-in-Home Tax Deductions: Here’s what you need to know

Working from home is now more common than not. The days of in-office work Monday through Friday seem like they may never return (which I’m not complaining about… I mean come thru sweat pants!).  

First of all, let me insert my disclaimer:

Currently, the tax law allows only those who are non-employed to deduct home office expenses.  Keep that in mind as you continue reading. 

There are many benefits to working from home: the endless time with your dog, the ability to cook a fresh hot lunch, the list goes on… But, did you know you can claim a tax deduction when you work from home? 

Let’s go over the who, what, and how of the office-in-home tax deduction. 

Who can claim home office deductions? 

Home office deductions apply to business owners, whether you’re a sole proprietor or an LLC. 

What qualifies as a home office expense? 

The IRS considers home office expenses deductible if the office is used exclusively for business on a regular basis. This means you must have a specific room or area of your house that is used solely for conducting business. You cannot use it for personal or family purposes at any time. 

Regular usage is defined as follows: 

• The home office is the primary place of business 
• The home office is used as a place to meet clients or customers 
• The home office is a separate free-standing structure 

Additionally, the amount of time spent in the home office can determine if you are able to claim work from home tax deductions. Business activities should be primarily performed in this space. You cannot claim home office deductions if these tasks are mostly done at another location. 

Direct vs. Indirect Expenses 

There are two kinds of home office expenses…

1. Direct: expenses that specifically attribute to the home office (repairs, renovations, office chair, etc.). Direct expenses can be deducted in full. 
2. Indirect: expenses that are spent for the entire home (rent or mortgage interest, internet, utilities, etc). These indirect expenses are deducted based on the percentage of the home used for business. 

Things to consider depending on your business structure…

• Sole proprietorships
  As a sole proprietor, you can claim work from home tax deductions by filling out IRS form 8829, then use that number to report on your Schedule C.  
• Partnerships
  You can deduct your home office expense on Form 1040, US Individual Income Tax Return. The expense is listed as an “unreimbursed partner expense” on Schedule E, Supplemental Income and Loss. 
• Limited Liability Company (LLC)
  As an LLC, you enjoy both the limited liability of a corporation and the less strict compliance requirements of a sole proprietorship. You can choose how you prefer to be taxed.  
• C Corporations
  In a C Corp, all owners are employees so you are not allowed to take work from home tax deductions.