A Home Office Deduction Worksheet (Excel) To Calculate Your Tax Claim
If you are a self-employed freelancer or independent contractor using your home for business purposes, you can claim a deduction for home office on your personal income tax return. The deduction is available for self-employed individuals who regularly work from home and use a portion of the premises regularly and exclusively for business-related activities. The home office deduction gives you a tax write-off for such items as mortgage interest, rent, utilities, real estate taxes, maintenance, repairs, and other related expenses.
While the home office deduction offers a significant benefit for those who are eligible, it can be difficult to track all of your expenses, especially when you are also dealing with the hassles of running your own small business. To simplify things for self-employed independent contractors, we provide a home office deduction Google Doc worksheet in excel that will help you track your expenses over the course of the year in one convenient Excel spreadsheet.
But before we start tracking your deductions, let's take a moment to review what expenses qualify for the home office deduction and how the IRS calculates the amount you are allowed to deduct.
What Qualifies as a Home Office?
The IRS defines a self-employed individual's "home" as including a house, apartment, condominium, mobile home, or similar property that provides basic living accommodations. That definition also includes any separate structure on the homeowner's or renter's property, such as an unattached garage, barn, or studio.
But wherever your home office is located, the IRS requires that it be regularly as your principal place of business to qualify for the deduction. If you are also using your home office part of your home for other purposes--like a bedroom for occasional overnight guests--you can only claim the space around the desk where you actually work. If you are fortunate enough to have an entire room to dedicate to your home office, you can deduct the square footage of the entire room.
Two Methods for Calculating Your Deduction
The IRS allows a business owner who is claiming the home office deduction to calculate the deduction's size using one of two methods: the actual expense method or the simplified method. While the simplified method can be useful for some self-employed individuals, the deduction is capped at $1,500 each year. Since most self-employed individuals have more than $1,500 in deductible business expenses each year, it is usually better for them to choose the actual expense method.
Our worksheet assumes that you will be filing using the actual expense method because the simplified method bases the size of the home office deduction on the amount of space in your home that you are using as an office and requires no additional records. Essentially, the simplified method gives a self-employed taxpayer a tax deduction of $5 per square foot of their home, up to 300 square feet, at which point you will have reached the $1,500 cap for the deduction.
Itemizing Your Expenses under the Actual Expense Method
If you have chosen to use the actual expense method for calculating your home office deduction, you will need to itemize your home business expenses. The IRS allows you to deduct two types of home office expenses: direct and indirect expenses connected to the business use of your home.
Direct Expenses are those for items that you use only for your business, such as office furniture, business computers, and other business equipment.
Indirect expenses are paid to run your entire home, and you may only deduct the portion of those expenses that apply to your dedicated home office space. These generally include mortgage interest and real estate taxes (if you own your home), rent, utilities, and home repairs.
Using an expense tracker app like Keeper Tax can help you automatically record this by scanning your bank and credit card statements.
Calculating the Deductible Portion of Your Indirect Expenses
If you are claiming indirect expenses under the actual expense method, you can deduct the "business use percentage" of many common homeowner expenses. The business use percentage is based on the portion of your home that is actually used for your business. For example, if you own a 2,000-square foot home and use 200 square feet of it to operate your business, you are using 10% of your home for your business (200 divided by 2,000 multiplied by 100).
Once you know your business use percent for your home, you know the percentage of home expenses that you can attribute to your business. To continue with the example above, if you are using 10% of your home for business and pay $3,000 in real estate taxes each year, you can deduct 10% of that amount as a business expense, or $300. Usually, you can deduct at least a percentage of these common household expenses:
- Rent as a tax deduction
- Home depreciation, property taxes, and mortgage interest (if you own your home)
- Home essentials
- House cleaning
- Internet access
- Home repairs and maintenance
- Security systems
Limits on the Home Office Deduction
Unfortunately, the amount you can deduct for your home office is limited. That limit is based on your gross business income. Essentially, you cannot claim more deductions than the gross income from your business minus the sum of the following:
- Those home expenses would be deductible on your income tax return even if you did not use your home for business. As a general rule, homeowners are already allowed to deduct real estate things such as mortgage interest and home taxes; and
- Business expenses related to the business activity, but not to the use of the home. For example, salaries and supplies.
If your home office deductions exceed your business's gross income, you may be able to carry over most, or all, of the expenses to the next tax year.
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