If you’re a business owner, subcontractor, or consultant using a home office, you may be eligible for valuable tax deductions. However, many people don’t realize that there are two methods for calculating home office tax deductions, each with its pros and cons. Here’s a quick breakdown:
- Actual Method: Deduct actual home-related expenses like utilities and mortgage interest, based on the percentage of your home used for business. This method could give you a larger deduction but requires you to account for depreciation, which can complicate things when you sell your house.
- Simplified Method: Easier to manage, you simply multiply the square footage of your office by $5, with a max deduction of $1,500. The deduction may be smaller, but it avoids the hassle of depreciation.
For W2 employees, home office deductions don’t apply federally, and state deductions are often minimal.
Want to know which method benefits you the most?
Download our free PDF on home office tax deductions to help you decide.