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Taxes 2022: How small businesses can deduct home office expenses

By on January 20, 2022 0

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If you are self-employed and use part of your residence for business purposes, you may be able to deduct certain related expenses. To claim the home office deduction on your 2021 tax return, the IRS says you must “exclusively and regularly” use part of your home — or a separate structure on a property you own or rent — as your location. of main activity.

See: A step-by-step tax guide for first-time filers
Find: Taxes 2022: should you file your return earlier this year?

Am I eligible for the home office deduction?

Although employees are not eligible for this deduction, self-employed taxpayers can deduct certain home office expenses from their business income if their office qualifies. These expenses can include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent. The deductible amount of these types of expenses may also be limited.

There are also basic requirements for your home to qualify for a deduction. The IRS definition of a “home” includes a house, apartment, condominium, mobile home, boat, or similar property. It also includes other structures, such as a detached garage, studio, barn, or greenhouse.

According to the IRS, there are two conditions for your residence to be eligible for a deduction:

  • There must be exclusive use of part of the house for conducting business on a regular basis, such as an extra room.
  • Domicile should generally be your principal place of business. You may still qualify for the deduction if you carry on activities outside your home, but still use your home office for business purposes.

Check out: Taxes 2022: Are face masks and hand sanitizer deductible?

How to calculate your home office expenses

The IRS indicates that there are two methods for calculating your home office expense deduction: the regular method or the simplified method.

In the usual way, deductions for your home office are based on a percentage of the house devoted to business use. With this option, you can claim home-related expenses such as rent, mortgage interest, utilities, insurance, repairs, depreciation, and other expenses.

To determine the deduction in the usual way, divide the square footage of your home office by the total square footage of your home to get your deductible percentage. Multiply this percentage by the sum of your home’s total allowable expenses.

Using the simplified method, multiply the total square footage of your office by $5. The maximum size for this option is 300 square feet and the maximum deduction is $1,500.

Learn: What’s the difference between a standard deduction and an itemized deduction?
Explore: Tax Filing 2022: How to Set Up ID.me for the IRS

How to Claim the Home Office Deduction

If you use the simplified method, you can take advantage of the Schedule C deduction when you report your business income and expenses. If you use the regular method, submit Form 8829 with your tax return, then report the full deduction of your business income on Schedule C.

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About the Author

Josephine Nesbit is a freelance writer specializing in real estate and personal finance. She grew up in New England but is now based in Ohio where she attended Ohio State University and lives with her two toddlers and her fiancé. His work has appeared in print and online publications such as Fox Business and Scotsman Guide.