Did you know that roughly three million Americans work from home as freelancers or contractors—even now many small businesses are moving to remote work? If you work from home, you should take advantage of home office deductions.

A Forbes article notes an interesting detail: most people do not make home office deductions because they are afraid of an audit!?

There’s a false rumor floating around that any deduction made will cause a red flag to appear, and that, in turn, will result in a fast audit. While there’s little to no truth to that notion, the fact of the matter is that an audit isn’t a big deal if you have gone through the deductions according to IRS rules – or you’re working with a CPA that knows the right way to make these deductions.

Tax Rules for Home Office Deductions

If you are one in three million, you should know that the tax rules for home office deductions have changed.

Take a look at the new rules below.

1. Under the new ‘Safe Harbor’ law, freelancers can now claim $5 per square foot and up to 300 square feet when it comes to home office space.
2. If you work from home but so does your spouse, you can each claim a separate home office space, but you can’t both claim that space if you both work from the same office.
3. It is only possible to claim one home office, so you can’t claim the office space at your summer home if you work out of both spaces.
4. You have to meet the government’s requirements for a home office space.

Government Home Office Space Requirements

There are some rules that the IRS has created that pertain directly to your home office space as follows:

• You can’t claim more than $1500 in home office space per year (300 square feet). There are some loopholes here if multiple people work from your home that your Fort Collins accountants can help you figure out, though.
• You can’t claim your home office if you gain any kind of rental income from the same address.
• If your employer reimburses you for your home office space, you can’t claim this space.
• You have to use your home office for work, and you can’t use it for anything else. If you use the same space for your living room, it’s probably not deductible. But, there are some exceptions to this rule, so check with your Fort Collins accountants.
• Consider depreciation specifications when thinking about taking the easy route to claiming your home office through the Safe Harbor law. In some cases, this way of deducting might not be worth it, so make sure to ask your Fort Collins accountants if the Safe Harbor route is best for you.

Which Route to Choose

In some ways, the government has made it easier to deduct home office expenses, but simpler is not always better. In this case, simpler might actually mean less for you, so it really does pay to weigh the pros and cons here. Or, to stop that impending migraine, consider calling your CPA firm to help you sort out all of the laws, exceptions, and clauses. As with most other tax work, there’s nothing simple about figuring out whether or not to claim your home office, or what you should and shouldn’t actually claim. You don’t want to wind up with an audit, so make sure to talk to your CPA firm in order to get the help that you need to keep your business running smoothly.

More often than not, you can actually claim a lot when you run a business from home, but you have to be legitimately running your business from your home office — you can’t simply claim part of the kitchen table, unfortunately. That said, you don’t have to have a dedicated room either, but you do have to have a space that’s clearly designated an office space — any old space simply won’t do. Combing through the government rules and regulations pertaining to a home office and deductions can really be complex.

There are calculations to be made, things to consider, and limitations to set — none of which are fast or painless. If you do have a business that you run from your home, make sure to call your CPA firm in order to set things straight.

Home Office Deduction Tips

There’s a reason why home office deductions exist, and that reason is that you are absolutely entitled to various deductions if you work from home on a regular basis. Here are some other things that you need to know in order to make those home office deductions work.

1. Note the terms of the “home office:” in order to make these claims, the space that you use for work purposes in your home must be used exclusively for your work – that means that you can’t use the kitchen counter to work and claim your kitchen space as your home office. (That is unless you are a caterer!)
2. You can move around: it’s not realistic to assume that a home office worker only works from home – most people that have home offices occasionally work elsewhere, and that’s fine. The IRS just wants to see that you use your home office space on a regular basis.
3. The IRS tends to update the amount per foot that you can deduct every few years, so make sure that your current information is accurate.
4. You may or may not be able to claim your cellphone bill. In some cases, that cell bill will work as a deduction, but other times it won’t. How can you be sure? Talk to your CPA because each case is different.
5. Keep all of your receipts. Keeping receipts is so simple (and you can even take photos of your receipts and drop those into a file on your computer or in the cloud), but most people don’t go through this extra step. You should always keep your receipts, just in case something happens and you do have to face an audit. If you don’t have a specific receipt, call the store where you purchased the item in question – most stores take your phone number or other details these days, and that tends to mean that they have your purchases on file.
6. Work with a qualified CPA. Seriously. The biggest mistake that we see people make is working with an accountant that doesn’t know how to work around small business or home business deductions. Often, these people come to us with a tax mess that we work hard to clean up. When looking for a Fort Collins CPA, pick one that has worked with small businesses before, and ask whether or not that person (or team) has experience with home office deductions. Otherwise, you may end up with an audit and deductions that you can’t explain.
7. Understand what your Fort Collins CPA does. When you do choose a Fort Collins CPA, make sure that you understand all of the deductions made. All too often, people that work from home don’t really look at the deductions made on their behalf, but it’s a good idea to understand what’s going on as far as your small business accounting documents are concerned, just in case the IRS has questions.

If you do work from home and want help with your taxes and deductions, make sure to call our offices. We can also help you out with any kind of former bind that you may be in due to working with a CPA that didn’t understand your business. Keep in mind that working from home means that you can deduct your home office and various expenses, and not doing so doesn’t make much sense. If you have any questions about the information listed here, please leave us a note on this blog – or connect with us on Facebook to learn more about what we do when it comes to small business accounting (and to get some great tips!).

But What if I Telecommute?

If you are telecommuting to work, you aren’t in a home office. So do these tax deductions apply? Employees who telecommute for work may be eligible to deduct some of their home office expenses from their taxes.

3 Rules for Telecommuters to Deduct Home Office Expenses in Fort Collins

Now while this does apply to many telecommuters, it is important to go through these 3 rules to make sure you qualify for home office deductions. If you are ever unsure about your tax forms and deduction eligibility, make sure to get in touch with one of the CPAs at Steven J. Wick & Associates, PC.

1. A home office qualifies as a tax deduction if it exists for the convenience of your employer. This means that your employer either requires that you have a home office or the office is necessary for the survival of your employer’s business. A home office can’t simply be for your personal convenience and still qualify for a tax deduction.
2. Next, the home office must be the main place you conduct business. This means that you regularly work, make appointments, or meet with clients from the home office.
3. The last requirement is that the home office is used regularly and exclusively for work. This does not mean, however, that the home office must be in its own separate room. It can be a portion of space from another room, but the office portion is used solely for work.

For more information on telecommuting and self-employed tax deductions, contact the accountants at Steven J. Wick today. One of our Fort Collins CPAs would be happy to sit down and answer any questions you may have about the upcoming tax season and what qualifies as a deductible home office expense.