Here’s How to Increase Your Home Office Deduction

July 8th, 2016 at 9:58 AM

My mission for my clients is simple: Make sure they get the maximum deduction and that it’s totally defensible.

In its “I’m here to help you” publication on home office expense, the IRS state “You can use any reasonable method to determine the business percentage” of your home that you use for business. The IRS Publication then lists 2 commonly used reasonable methods:

1.    Gross Square Footage. Divide the area ( length multiplied by the width) used for business by the total area of your home or rental unit.
2.    Number of Rooms. If the rooms in your home or rental unit are all about the same size, you can divide the number of rooms used for business by the total number of rooms.

However, there is a third reasonable method, commonly known as the net-square-footage method that must be considered as well. Under this preferred method you subtract from the gross square footage the footage consumed by:

1. outside walls, hallways, bathrooms, stairways, foyers, water heaters and  heating & cooling equipment

The result is your net usable square feet. The method increases the business percentage resulting in a larger tax deduction by reducing the denominator in your calculation. This method is also referred to the usable square footage in commercial real estate and cost accounting. In most cases that I have worked in my years as a CPA, this method can add 10-25% to client’s tax deductions  for home office expenses that include:

• mortgage interest
• property taxes
• utilities
• insurance
• rent
• maintenance and repairs
• and depreciation

If you operate your business as a corporation and your corporation reimburses you for the home office deduction, the corporation would benefit from this increased tax deduction.

As with all tax deductions be sure to maintain the proper documentation.