How do I calculate my home office deduction?
he most important first step in being able to calculate your home office deductions is record keeping!! Keeping all your records for your business home expenses is very important as you need to allocate the expenses of operating your home between business and personal use.
Basically, you would need to determine the percentage based on the actual amount of time you used your home for business.
First of all there is the regular method which allows you to claim certain costs that you paid for your home. If you Rent your home, part of your rent may apply and if you own your home, part of the mortgage interest, taxes and utilities you pay may qualify.
While we are at it, there is also what is called the simplified option for the home office deduction which can be claimed starting from 2013. With this simplified method you can simply deduct $5 for every square foot of your home office, with that being said, the deduction is capped at $1500 per year so that gives you a total of about 300 square feet. All the regular deductions still apply to the simplified method as well.
It is recommended that if you are considering using the simplified optional method to also work out your deductions using the regular method that way you can determine which method gives you the largest deduction.
There is also what is called a deduction limit meaning that if your income from the business is lower than your expenses incurred for using your home for your business then the deduction for some expenses may be limited.