Can I Write Off My Utilities If I Work From Home?
Working from home has a lot of obvious advantages: The commute's great, you can set your own schedule and the dress code is liberal. Beyond the surface-level perks of working from your home, you may also be entitled to tax perks tied to your home office, such as the opportunity to write off a portion of your home's utilities bills as a business expense. The deduction applies only to qualifying home work areas, however.
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Qualifying Home Offices
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Before you begin claiming home office deductions, your workspace must qualify for home office consideration. The IRS requires that a home office be used exclusively for business purposes or be the principal place you meet with your clients in the regular course of your business. You can't claim a bedroom with a computer desk in it, for example. If you're not self-employed and work at home, your home office must be maintained for your employer's convenience, not your own. So, if you have an office downtown and prefer to work from home, you don't qualify for a home office deduction.
Calculating Deduction Percentage
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If your home office meets IRS guidelines as a qualifying workspace, you can't immediately claim all your utilities as an expense; you can only claim an amount in proportion to the size of your home. You may choose from two methods to calculate the portion of your home used for business purposes. Divide the number of rooms in your home by the number of rooms used for business purposes to calculate a percentage as one method. Or calculate the square footage of your home office and divide that by the total square footage of your home. You can use the higher of these two proportions when you calculate your deduction.
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Calculating Utility Deductions
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After you figure the portion of your home that's used for business purposes, you may then use that percentage to compute the amount of your utility bills you can deduct by multiplying your utility costs by that number. For example, if you calculated your home office uses 10 percent of your home, and you recorded $2,400 in electric, water and gas bills for the tax year, you may claim $240 in utility expense. If you have a telephone line in your office used exclusively for business purposes, you may claim its entire cost.
Other Home Office Deductions
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Utilities aren't the only home office deduction available to you if your workspace meets IRS qualifications. You may also claim a relative proportion of your mortgage payment or rent costs. If you own your home, you may also claim a portion of your home's depreciation and the cost of repairs and insurance as a business expense. However, if you claim some of these expenses, you may waive certain tax exclusions when you sell your home. Consult your accountant to determine which home office expenses are cost effective for you to claim.
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References
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