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How Home Office Deduction Work on Taxes

woman working in home office
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Everyone’s working from home – or so it seems. So, it only makes sense that there will be home office deductions on your tax return. Here’s everything you need to know about home office tax deductions.

Who Can Take the Home Office Deduction

If you’re self-employed, congratulations because this home office deduction is for you. Once upon anyone could claim this as an itemized deduction if you worked from home, but that was eliminated a few years ago.

To be eligible to claim this deduction as a self-employed person, you must have a home office or work space the is used exclusively for your business. This means you cannot use that portion of your home for any other reason.

In addition, the home space must be your primary place of business. That means you do not have access to an office or space outside of your home. This includes when you’re forced to work from home because of circumstances out of your control. Business owners who were forced to work from home due to the pandemic is a perfect example.

What is an Eligible Home Office Deduction

The majority of thing you use the course of your business is an eligible deduction. So, when you work at home that include a portion of your utilities, mortgage interest, even rent. However, to reduce your chance of being audited you need to know what expense category each belongs under.

The E-book the Tax Deduction Index was created for this purpose. It has a list of hundreds of eligible business expenses and the tax category listed to claim it properly.

How is Home Office Deduction Calculated

There are two way to calculate the portion of your expense that’s eligible. You can do the simplified option or the regular method.

The simplified option is when you get $5 a square foot for business use of the home, to a maximum of 300 square feet. That would be a $1500 deduction if your space was that big.

The regular method is when you claim the portion of the expense based on the percentage of the home devoted to business use. The expense amount would be the Indirect expense. The portion to the business would be the Direct expense.

For example. Your electricity bill for the month was $200.  If your home was 1000 square feet and the portion of the home used for business was 10 square feet, the eligible business deduction would be 1% (10/1000 = 0.01 x 100 = 1%).

Indirect Expense Amount: $200

Direct Expense Amount: $2

The eligible deduction for your electricity bill would be $2 based on the regular method

After you total all your expenses under the regular method, you can determine if simplified would work out to a bigger amount.

How to claim the deduction

To claim the deduction, you must complete form 8829 which is carried to your Schedule C of your Income Tax Return (Read: What taxes you must file when self-employed).

Visit the IRS for more information on home office tax deductions.

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Income Tax Forms You Need to File

Before you file your tax return make sure you have all the required forms to file. A W-2 is the one form everyone seems to be familiar with, however that’s not the only income form. If you received any additional income, there are other forms you may need to file. You don’t want to receive a letter from the IRS stating something is missing.

Here is a list of the income based forms you may need to file during the tax season.

Employee Wages: W-2

Income received as a Contractor: 1099 MISC

Retirement account Income (ie 401k): 1099-R

Stock Sales: 1099-B

Dividend Payment: 1099-DIV

Bank Interest: 1099-INT

Unemployment Income: 1099-G

Lottery/Gambling Winnings: W-2G

If you have questions about your income tax return, schedule a 60 minute coaching session.

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3 Expenses For Paid Writer

You already know as a writer you’re self-employed. That means you can file a business return during tax season. The benefit with doing this is you can subtract money spent to make your income as low as possible. The thing with tax returns is, the more income you have, the more taxes you pay!

You can’t claim everything you spent, but you can use what the IRS considers a “qualified expense.” It’s easy to overlook some of these expenses as a writer. 

RESEARCH MATERIALS

If you’re like me, you put in tons of research before becoming an authorpreneur. You’d even pay if the information was valuable.

This expense pays you back more than once. One for knowledge and the other as a “supply expense” on your tax return. 

ISBN

Whether you purchase one or in bulk, the amount you pay is can be amortized because it’s an “intangible asset”. Amortization is similar to a depreciable expense where you claim a portion each year until it totals the original amount paid.


An ISBN is considered an amortized expense because it is not a physical item but is still an asset. Just like a computer, it holds value. It also has an useful life over a year which is a necessity in order to amortize or depreciate an expense.

VENDOR FEE

If you’ve showcased at a book expo or festival, more than likely you’re paid a vendor fee. Even if you didn’t do as good as you thought, it’s good to know you can claim the cost of being featured. 

The vendor or exhibitor fee you pay is 100% deductible as an advertisement expense on your tax return. 

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HOW EXPENSES HELP

With running a business we all hope to have as little expenses as possible. However, when it comes to tax returns, expenses help. If you aren’t reporting business expenses, you’re being taxed on total income earned from your business. If you report expenses, you are only taxed on the net income.

Net income is:

Income – Expenses = Net Income

Net income is used to determines the amount you will owe in employment tax as well as income tax.

It is important to keep track all your income and expenses from your business. I recommend using accounting software because it can also help with the amount of taxes you owe. If you’re not into doing it yourself, contact me to do it for you.