Most people have heard of the home office deduction — it lets you take a tax write off for using part of your home for business purposes. But how exactly is it calculated, and how do you take it?
First off, let’s talk about how you get the deduction, as this depends entirely on how your business is taxed.
- Non-business Owners – If you don’t own a business then unfortunately you’re not eligible for this deduction. However, you can still ask your employer if they’d be willing to reimburse you for certain expenses for allowing you to work from home (e.g. desk, additional monitor, etc.).
- Sole Proprietors – (i.e. Schedule C) – For those being taxed as a sole prop, you have two options. The first is to take the home office deduction on form 8829, which is a part of filing your personal 1040. The second is by using the simplified method; reported on Sch C. Under this method you get a deduction of $5 per square foot for the part of your home used for business, up to a maximum of 300 square feet (i.e. $1,500 max deduction).
- Partnerships – If your business is taxed as a partnership, you can either submit a reimbursement to your company for your home office expenses, or submit them as unreimbursed partner expenses (UPE) on Schedule E, part II (part of filing your personal 1040).
- S-Corps – If your business is an S-Corp, you will want to submit a reimbursement to your company for your home office expenses.
Second, let’s discuss how to calculate it. As most people get reimbursed using the regular method (i.e. calculate actual expenses based on the percentage of your home used for business), I’ll focus on that in this post. For those taxed as a sole prop, you’ll go through a very similar exercise when you fill out form 8829. Finally, to help illustrate this, I’ve created a how-to video, and a free home office deduction calculation template.
- Download a copy of the home office reimbursement template
- Fill in the date range for which you’ll be reimbursed
- Fill in the square footage of your home office, and the square footage of your home
- Enter your indirect expenses
- Enter your direct expenses
- The sheet will automatically calculate the reimbursement you’re eligible for
- Submit this sheet as part of your company’s normal expense reimbursement process
The home office deduction isn’t one-size-fits-all. But for those who get reimbursed, this template provides a simple & easy way to get the deduction & keep more of what you earn!
