You Need to Know: Home-Based Business Tax Deductions
Building your startup out of your own home is a great way to save money. In the beginning of your business, you want to simplify and streamline as much as possible. A home office can be the place you brainstorm, manage, sell, create, and market.
While you save money and time working from home, make sure that you know about home office tax deductions.
Do I Qualify?
You can deduct home office expenses if you are:
Self-employed
Freelancer
Independent Contractor
Gig Worker
If you work solely as an employee with a W-2 position, you aren’t eligible for this tax break as of 2017.
But luckily for those with side jobs that they work in addition to their main employment, you are eligible for these deductions for the months you work in the above positions.
How Deductions Are Calculated
The IRS introduced a simplified method in 2013 for calculating tax deductions for home office space. You can deduct $5 per square foot for up to 300 square feet of dedicated office space used for your business. With this simplified method, no home depreciation deduction is available.
On your Schedule A form you can list all your home office related itemized expenses.
With the standard method, the process is more complicated and potentially confusing. But you may be able to claim some deductions that are missed in the simplified method.
More Office Deductions
On your Schedule C form you can list other home office related expenses.
Here are a few areas to consider:
Printers
Internet modem
Office chairs
Desks
Computers or Laptops
Filing Cabinets
Storage Furniture
Lighting and webcam for Zoom calls
Tax Deductions for Side Hustles
Even if you didn’t register your side job as a business, it could still be considered self-employment and be eligible for tax deductions. And if you only took a couple jobs and worked only a few months out of the year, you can still count your expenses. Simply prorate the amounts you can deduct based on how many months you worked, or only count expenses during the months you worked.
Here are a few common “side hustles” you may not have known are eligible:
Graphic design
Selling arts and crafts
Tutoring
Consulting
Selling secondhand items online
Providing music lessons
Anything you were paid for is income you must report to the IRS. Check with your tax consultant or accountant to find out if you are eligible for tax deductions on this income.
Need Help With Your Home-Based Startup?
Contact Pioneer Accounting Group. We can help your startup grow from a home-based side hustle to a thriving and profitable business.