What Counts as a Home Office?
If you’re an entrepreneur, you might have considered utilizing your home space as an office. It doesn’t matter if you’re new or old to the business world, having an office space at home just sometimes makes your work life a lot easier. So, you’ve looked a little bit into it… but you left with even more questions.
You’re not really sure what constitutes a home office to actually be a home office; especially when it comes to insurance. You want to be getting it right. If you do, you’ll save on taxes and get the right insurance coverage. But if you get it wrong, the costs could outweigh the benefits.
Here’s how to get it right.
Doing It the Right Way
If you want to file your home office on your taxes, the key is being specific with two words. To deduct home-office expenses, the area you call an office needs to be used exclusively and on a regular basis. It either has be used as your principal place of business or a setting to meet with potential patients, clients, etc.
So, by exclusively, we mean the home-office space is used only for work. However, it doesn’t have to be an entire room. For it to be considered an office space, the work area needs clear boundaries.
Then again, you don’t have to use the office every day for it to be considered as a regularly used work space. Even if you work from home part-time and use the area once or twice a week, you can claim it. If it’s consistent, you’re allowed to claim it.
Now onto the actual insurance. You can claim deduction whether you’re a homeowner or a renter. If you don’t have insurance yet, it’s time you look at some home insurance quotes. Having the right insurance will give you the best coverage for deducting home office expenses.
Furthermore, there’s a simplified option for computing the home office deduction. This means you’ll have less recordkeeping to do. Reducing this burden and allowing a qualified taxpayer to multiply a prescribed rate by allowable square footage of the office is part of the process. Essentially, you have to give up something for determining actual expenses.
The standard method has some calculation, allocation, and substantiation requirements that are more complex than the simplified route. Taxpayers using the regular method must determine the actual expenses of their home office. Typically, these expenses include mortgage interest, insurance, utilities, repairs, and the like.
The regular method works by considering how much percentage of your home is used for the business. If you’re using an entire room for your company, you’ll need to know the percentage of your home it occupies.
Things to Watch Out For
Finally, because you plan on deducting expenses, you should try to keep as detailed of a track of expenses as you can. In the case that you’re audited, you’ll have a track that can back up your expenses. Include purchases, electric bills, utility bills, and repairs to make it a comprehensive list that back up your claims.
Alright, so we went over how to claim deductibles, which expenses to keep track of, and your dire need for homeowners or renter’s insurance. If you’re not utilizing your home space already, the benefits seem plentiful. It’s a great way to save money and make work life easier. Just make sure that you purchase insurance and your office meets the requirements. Otherwise, it’s time to get to work. Go get ‘em!