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Is working your business from home a luxury? Maybe luxury isn’t the right word, but there are perks! We’ve asked some work-from-home pros to learn what it’s really like. For some, it’s the best of all worlds because there is no commute and you’re there for emergencies of family members. Other perks might include the extra comfy clothes you can wear. Holly is a fan of the “business on the top, pjs on the bottom” option because she spends a lot of time in Zoom meetings. And Barb says there’s “easy access to the kitchen, which is both a pro and con”.
On the flip side, pet owners who are trying to focus, can be easily distracted. Take it from Isabella who warns that “Sometimes your cat turns your router off, so be sure to check that if you lose your connection.” Meanwhile, Rachel has a different feline frustration as she spends a lot of time in her team’s chat app. She claims it’s not her, but rather her “cat walking across the keyboard and sending messages in Slack". Hmmm…that’s one clever cat!
Another source of truth to working from home comes from Lena who says “During breaks, you get to empty the dishwasher or fold laundry and fit in some other chores you normally wouldn’t get to do.” Yes, she really did say “get to” do those chores!
It’s unclear which is best and it depends on the person. Some studies show evidence that certain people are actually more productive and focused at home. And others really need that separate work space to prevent the everyday distractions of family and household tasks. From a tax perspective, an external office space for business is a clear write-off and easily proven. A home office has those darn “rules” that were mentioned above, and sometimes audited.
If having a home office is right for you, know that the IRS suspects you actually live in your home, and don’t just work there. Yes, it’s strange but true! That means there’s a fuzzy area of if your deduction is for a legit “exclusive use” business work space - and you don’t also use the same space for personal or family purposes. That’s why it makes sense to take a peek at Setting Up a Home Office for simple steps to set yours up properly.
It’s not just the “exclusive use” that the IRS considers, there also must be “regular use” and it must be the “principal location” of your business or the place where you regularly meet clients or customers. Of course there are exceptions in the case of storing inventory or if you operate a daycare in your home. You can read more about those in this all-inclusive article titled Can I Take The Home Office Deduction?
Finally, there are two ways you can deduct your home office - the Simplified Method or the Actual Expense Method. The simplified method truly is simple. It’s $5/sq. ft. of home office space for a maximum 300 sq. ft. The actual expense method involves gathering your receipts for utilities, mortgage interest, property taxes, security system, repairs, and more. And you also claim depreciation for the home office portion of your home. While the actual expense method is a bit more involved, the tax reduction payoff might be worth it! The links above go into the details of both so it’s easier for you to choose. Rest assured that the TurboTax software will walk you through the best home office deductions for your situation.
BONUS: IRS Publication 587 Business Use of Your Home If you like to read, this IRS publication has it ALL!
NOTE: A special thank you to ALL of the TurboTax Community Tax Expert Leads & Managers for sharing their real life experiences to entertain and educate us all.