Tax Thursdays! How to deduct your home office costs

March 1, 2012


Welcome to the FreshBooks Tax Thursdays series! We know a lot of small businesses struggle with taxes, so we’re hoping to help make it a little easier by featuring advice from leading accounting professionals every second Thursday from January to April. Today we hear from Mariette Knoblauch on how to carefully deduct your home office at taxtime.

Some people are uncertain about deducting the expense of a home office. You might be asking yourself, “do I qualify? Will I get audited?” But a home office can be a legitimate deduction for someone who runs a business from their home, and there’s no reason not to take advantage of it!

What qualifies as a home office?

A home office is a space that is used “regularly and exclusively” as your place of business. It doesn’t have to be a separate room; it could just be the area of your desk and file cabinet. There are other ways to qualify for a home office deduction. If you meet clients or customers in a specific area of your home, even if you have office space elsewhere, or if you store inventory in a specific area of your home, those uses also qualify. If there is a separate structure not attached to your house that you use for business, like a garage or studio, that counts too.

Who can request this deduction?

This isn’t just for homeowners – renters can also take advantage of a home office deduction. The square footage of the office area, divided by the total square footage of your residence, gives the percentage of your home mortgage interest and real estate taxes or rent, home or renter’s insurance, and utilities that you can deduct. Home-owners may be able to take an amount for depreciation as well.

True or false? Deducting a home office results in an audit

Anyone can be audited, home office or not. The question you need to answer is, do you have evidence to substantiate your deduction? It is a good idea to photograph the space, record your measurements, and keep all personal items out of the office space. If you have appropriate evidence to support your deductions, you will be able to show that they are legitimately allowable if anyone ever asks.

Extra perks you should know about

One benefit to having a home office that most people don’t think of is the ability to take business mileage. Every time you leave your house to meet a client or vendor, go to a meeting, pick up or deliver documents or goods, or go to Office Max, you can deduct an amount for mileage. At the current rate of .555 a mile, that’s $11.10 every 20 miles. That can add up over the course of a year. You need to keep good records, but you can use a notebook, spreadsheet, calendar, smart phone app, or whatever method suits you.

Refer to the government source on the IRS website – Publication 587, Business Use of Your Home for more details.

Mariette Knoblauch is a tax accountant in Seattle specializing in small businesses who use cloud accounting software. Her website is www.ballardbeancounters.com


about the author

This is a guest post for the FreshBooks blog. FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.