How to Deduct Home Office Expenses

The surge of people working from home has given way to some nice exemptions on the annual IRS forms. Deduction of home office expenses provides the best of these. While enjoying the 5-minute commute to your workstation, you can deduct home office expenses to add up to quite a nice savings. Add to your federal income tax a percentage of the rent or mortgage payments, interest and utilities.

Difficulty: Moderate

Instructions

Things You'll Need:

• Rent or mortgage receipts
• Utility bills
• Tax notices
• Insurance invoices
• Federal income tax forms Schedule C and 8829

1. Maintain an office space for your daily work at home. This space should be the only place you do this work. You do not have to have an office elsewhere as well.

2. Figure how many square feet of your home is dedicated to the exclusive use of your business. Take the total square footage of your home and mathematically decide the percentage. As an example--if your house is 1,000 square feet and your office is 100 square feet, you will multiply your expenses by 10 percent to get your deduction.

3. Track your home expenses from January through the end of the calendar year. Keep a written record-you will need it when figuring your taxes for this year.

4. Take the total from adding your home expenses and multiply that number by the same percentage you got when figuring the portion of your home's square footage. This is the number to claim on the home office expense deduction tax form.

5. Figure this year's taxes and add the expenditures to the separate page. These numbers will help in the overall total of your taxes and will be a big help to the bottom line.

Tips & Warnings

• Keep track of the numbers throughout the year, and your job will be much easier.
• Calculate the expenses dedicated to the exclusive use of your business and list them separately. Figure them individually by the percentage mentioned above. A normal home office will often fall between 5 and 10 percent of the total square footage.
• Use form Schedule C to compute your business expenses and form 8829, "Expenses for Business Use of Your Home."
• Your office space should include a desk, chair, computer and printer (if needed), filing cabinet and anything else you find necessary to do your job.
• Heed the advice to keep tallies during the year of your expenses. Trying to figure everything at tax time is a horrible task.

Resources

• Internal Revenue Service
• Visit Bank Rate for tax advice.
• Power Home Biz offers business tax advice.