Is a Home Office Tax Deductible? A Quick Guide For Entrepreneurs
November 09, 20215 min read
Is a home office tax deductible? The short answer is— yes!
The tricky part is figuring out what is andisn’tallowed to be considered an expense for your business.
Now, I’m not an expert on tax write-offs (you still need your CPA for that). But as a fellow entrepreneur, this is the one area I wish I knew more about when I first started.
Running your business isn’t as easy as people on social media make it out to be. However, like you, I view the world as something full of opportunities. So long as you can get over all the hurdles that no one tells you about. And that includes tax write offs for your business.
How To Qualify For Home Office Deductions as an Entrepreneur
First, it’s important to figure out if you even qualify as a “business owner” with expenses.
This is the easy part. Because it doesn’t matter if you work eight hours per week or eighty… you’re a business owner.
The canvas, paint brushes, tools, packaging, postage, marketing, and yes—even my office chair— is a home office tax deductible item.
You can be working from a rented out office, a co-working space, or you just have a corner of your bedroom dedicated for work. As long as you have viable income to report, the IRS sees your office as your exclusive work area. Anything used here is eligible for a business tax write off.
Well— almost anything.
If running an empire was easy, everyone would do it. Figuring out the nuances of expenses for your business is one of those things you need to understand through and through.
An Entrepreneur’s Quick Guide To IRS Home Office Expenses Deduction 2021
A bunch of people now have the privilege to work from home (one of the only good things to come from 2020). Now that you have a home office, you have home office expenses, right?
If you work from home but still have an employer, you can’t claim the things I’m about to discuss below. You can only file business tax expenses for a solo business. This applies to anyone with an Etsy shop, a freelance writer, a consulting side hustle, or people making some money on platforms like Fiverr.
Whatever business you run outsideof your employer has tax deduction privileges, but it’s important not to blur the lines here. You’ll need to keep itemized lists of every expense you acquire. It cannotoverlap with your employed position’s “office”.
Keeping an itemized list can actually help you calculate more write offs which could mean more capital for your business. Again, I’m no expert here. Talk to your CPA about that.
And while you’re at it, make sure you brush up on these two IRS articles:
Ordinary expense:Common expense for your industry. In my case, painting supplies is an ordinary expense.
Necessary expense:An item that is “helpful and appropriate” for your trade or business. More specifically it says, “An expense does not have to be indispensable to be considered necessary.”
You probably already know that things like a computer and printer can be considered a business write off. But did you know that things like lighting for Zoom calls and even office artwork can be added into the mix?
Let’s get into the fun stuff.
1. Square Footage
So the easyroute for this one is to take the simplified option, which is $5 per 300 square feet used to run your business. That’s $1,500 worth of deductions and you don’t have to worry about itemizing your utilities or anything I mention down below.
While this is the easiest option, it’s not the smartest. The best thing you can do for your business is file itemized deductions simply because you get more of them this way.
Do you need to rent out a storage unit for your e-commerce business?
What if you just need to spend $100 on plastic storage bins to hold your supplies?
In this guide, it states that a taxpayer can deduct expenses that are,
“Allocable to space within the dwelling unit used on a regular basis for the storage of inventory or product samples held for use in the taxpayer’s trade or business of selling products at retail or wholesale, if the dwelling unit is the sole fixed location of the trade or business.”
Right below that part, it says you can write off rentals for your business as well.
So if you’ve been reusing your old Amazon boxes for storage, it’s time to break out the (business) credit card and buy something more sturdy.
3. Office Repairs
A business dwelling needs to be functional, and an at-home office isn’t any different.
The IRS specifically grants write off benefits for entrepreneurs who put money back into their business in the form of office repairs. Some examples are:
Repairing broken windowpanes
Replacing worn-out minor parts
Sealing cracks and leaks
Changing oil or other fluids to maintain business equipment
Now, this doesn’t mean you can rewire your entire house and buy all new windows throughout and claim it on your taxes. These write offs are only good for the area used as your “office” within your home.
4. Interior Design (i.e. Artwork)
Artwork, furniture, and even painting your office is considered an expense.
More specifically, it’s labeled as a “business asset” or “improvement.” Furniture is considered a business asset while painting your office space would be considered an improvement.
Artwork is a bit trickier, but still a viable tax deduction. Just like the lighting we mentioned for your Zoom calls, art can be considered a “work expenditure” on Schedule C on you tax return.