The home office deduction is saving WFH entrepreneurs and small business owners significant money on their taxes. As long as you regularly and exclusively use a part of your home to operate your business, you can qualify for tax write-offs on both direct and indirect expenses.
Direct expenses include things like repairs, painting, and other improvements that are made specifically to your work area. Indirect expenses consist of utilities, mortgage interest, general home improvements, and other costs that deal with your home as a whole.
All this to say that, if you’re wondering whether or not you can update your home office and write off the costs on your taxes, the answer is maybe! Here, the Social Media Club St. Louis explains the process in more detail below, and provides a few ideas for home office updates that can boost comfort and productivity!
Business Structure
One of the first things you want to do with a newer business is to formalize its legal structure. This will impact not only the taxes you pay but also your personal liability protection, among other things. The rules and regulations for forming a business structure change with each state. The easiest way to ensure a quick and compliant process is to work with an online formation service — and you can even write off such services as startup costs.
How Write-Offs Work
Whether you’re a homeowner or a renter, you may be able to qualify for the home office deduction. It applies to single-family residences, apartments, condos, houseboats, and even freestanding structures like garages and studios. There are essentially two requirements you must meet in order to qualify for the home office deduction:
You must use the space regularly and exclusively for your business.
You must use the space as your principal place of business.
For example, if you’re using your master bedroom as your home office, you’ll find it more difficult to get the deduction. Your home office must be used for conducting business and nothing else. An example of this would be to convert a spare bedroom or basement into your home office.
Also, you must use your home office for management and administrative tasks, including bookkeeping, billing clients, making appointments, responding to emails, and so on. Your office doesn’t have to be the only place from which you run your business, but it essentially has to be your headquarters.
Ideas for Home Office Updates
If your home office meets the requirements above, then you can write off a variety of home improvements on your taxes and possibly increase its overall value. For example, are there any repairs necessary for making your home office an adequate workspace? Do you need to throw a fresh coat of vibrant paint on the walls for inspiration? What about the flooring — could you benefit from installing luxury vinyl or hardwood floors?
Another consideration is lighting. Try to maximize natural light by placing your primary workspace near a window, and invest in floor lamps and desk lamps that can boost your focus and productivity. Moreover, think about any equipment you need for running your business effectively. You can write off items like computers, printers, desks, ergonomic chairs, and decor. You can even write off your internet services!
These days, many WFH entrepreneurs are benefitting from the home office deduction. Evaluate your situation to determine what steps you need to take to become eligible. Also, remember to establish a business structure that will best serve your company’s needs. And take some time to plan out your home office so that you can start making the upgrades necessary for it to be the inspiring, motivating, and healthy environment you need it to be!