So many single moms (myself included) work from home, and many of us are eligible for the valuable home office tax deduction. So why don’t most of us take it?
Misconception is the number one reason most single moms avoid this valuable tax deduction – and we’re about to turn that upside down. We’ll debunk four myths about the home office deduction, and talk about the very easy way to knock up to $1,500 off your income.
“I’ll get audited for sure.” Fear of IRS audit is one of the biggest reasons single moms skip the home office deduction. There’s a good reason for that: It has a reputation for being a red flag for audit. But if your deduction is legitimate – and most are – take it anyway. Being audited doesn’t mean you’ll end up paying more in taxes, it just means you have to show the IRS the evidence backing up your claim. If you have it, you’ll walk out without paying an extra dime.
“I don’t meet clients there.” Years ago, the IRS considered the home office as a place to meet with clients (or patients), and if you didn’t do that, your claim could be denied. But that way of thinking has changed drastically. Now, all that it takes to count as a legit home office is that you actually use the space as an office and do work there.
“I’ll get a huge tax bill when I sell my house.” Again, that used to be true, but the rules have changed. Now, the only extra tax involved has to do with profits related to any depreciation expense you claimed. And that doesn’t even come into play at all if you use the simplified method…
“It’s too complicated.” Figuring out the home office deduction can be tricky when you use the full 43-line Form 8829 (be aware that this method can result in a larger deduction). But there’s an easier way to do it: the simplified method. All it takes is a little bit of math, and a simple 6-line worksheet on your Schedule C to deduct up to $1,500 from your taxable income. Instead of figuring out exact, actual expenses related to your home office, all you have to do is figure out the square footage of your office, and multiply that by $5. So if your home office measures 10 ft. by 15 ft., you’d get a $750 home office deduction (150 sq. ft. X $5). It’s that simple.
So what does it take to snag a home office deduction?
- Regular AND Exclusive: You have to use your home office regularly for work, and you cannot use that space for anything else. For example, if you regularly bill clients from your kitchen table, that wouldn’t pass the exclusive test. If you use half of your guest room for guests, and half for office space, that half room could pass.
- Main Place of Business: Your home office has to be the home base of your business, your primary spot for getting work done. So if, for example, you travel to meet with clients on-site, but do all of your booking, billing, paperwork, bookkeeping in your home office, that counts as the spot you substantially and regularly conduct business. If you do meet customers (or clients or patients) in your home office, or if you store inventory there, it automatically qualifies.
Those are the main points you have to be able to prove if the IRS comes asking questions. To beat them to the punch, keep records, take pictures, and document your home office use in whatever ways you can (have business mail sent to your home address, for example).
So if you’re working from home, take the deduction, and lower your tax bill. And if you have any questions, ask them in the comments and I’ll answer them.