If you work from home, you get a big break on your taxes. The IRS offers two ways to claim this write off -- the simplified method, and the regular expenses method. You can pick one or the other, but not both.
Option 1: Simplified method - you get $5 per square foot of your home office, up to $1,500.
Option 2: Regular method - you take a portion of all home-related expenses.
So... which method saves me more money on taxes?
Case 1: Urban renters...
Let’s say you rent a 1 bedroom apartment in an urban environment. On average, that means you’re paying $800 per month for rent. On top of that, you’ve got to pay for wifi, renter’s insurance, and all of your utilities which adds up to at least $150 per month. In this case, you definitely shouldn’t take the simplified home office deduction:
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Case 2: Suburb homeowners…
Let’s say you own a 1 bedroom home in a suburban environment. Your home is worth $200,000 and of course you’re paying for wifi, renter’s insurance, and all of your utilities which is at least $150 per month. Turns out, you still shouldn’t take use simplified method:
Case 3: Rural homeowners…
Okay, now let’s say you own a home further from all the bustle. The home is less expensive and you’ve got lots of room and a separate 300 square foot room for your home office. Now, it starts to make more sense to use the simplified method. But still, not quite…
