The Home Office Deduction

If you are like me and you run a very small business on a virtually non-existent budget, then you likely also have a home office.  The home office is not just an object of convenience; it is oftentimes now your company’s ONLY office.  While you are likely not paying yourself rent for this space, you can still deduct the costs associated with your home office.  However, there is one major stipulation imposed by the IRS: your home office must be exclusively used for business purposes.  If your office doubles as your guest bedroom, or even if your spouse or children sometimes use the office to do homework or other activities, the home office deduction is disallowed.  If you do have a bona fide home office, then you have the ability to deduct the home office’s pro rata share of the home expenses.  This share is calculated as the ratio of the square footage of the home office to the total square footage of the home.  Some of the most notable items you can deduct are:

• Rent (BAH if you are in military housing)
• Mortgage interest
• Depreciation
• Real estate taxes
• Homeowner’s or renter’s insurance
• Utilities
• Repairs and maintenance

If you have not kept adequate records of these expenses but still would like to take the deduction, there is a new “safe harbor” option for 2013: you may simply multiply the square footage of the office by $5, for a maximum of 300 square feet, or a maximum total deduction of $1,500.  While the actual expense method can generally generate a larger deduction, the safe harbor method is a great option for those of you who just don’t have your records in order.  If you would like more information on how you can take advantage of the home office deduction for 2013, get in touch!