Home Office Deduction Eligibility?

[Hopefulteacher94]

What is the name of your state? PA

Hello! I started teaching online after the COVID lockdowns. I’m self employed, receive a 1099 and file a schedule c to report my income/expenses.

Last year I didn’t claim any home office deduction because I was confused about eligibility and was receiving a refund anyway. This year though my income has picked up and am looking for some advice on the home office deduction requirements.

I live with my boyfriend in his home (owned), we split our total household expenses relatively 50/50, with him paying the mortgage & taxes while I pay most of the utilities. Does this exclude me from taking the home office deduction?

I don’t pay “rent” but I do pay other expenses. In my tax software it says there’s a simplified method of $5 per square foot and you don’t need any receipts. I don’t have many expenses besides the utilities so the $5 per square foot is close if not a little more than what my actual business use of utilities would be.

Do you really not need any receipts to save though? What sort of records should I be saving in case I ever have to prove my deduction? Or am I not even eligible because I don’t technically own the home or have a lease? I just want to make sure I’m not shorting myself on deductions, but I also don’t want to risk taking something I’m not supposed to.

 

[Zigner]

$5 per square foot of what you actually use for your business, up to a maximum of 300 square feet.
Review https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-deduction

 

[Hopefulteacher94]

Thanks! My home office is about 125 square feet. Is there anything I need to hold onto proving the square footage? I over analyze, so I get hung up on how often they say “exclusive and regularly”. All of my teaching is done in here and it’s not used for anything else. There is a closet that we use for storage, but it’s not part of the square footage. I just keep feeling like I need to prove it’s a real deduction lol

Also, I don’t think it matters for the simplified method, but the software still asks for the square footage of the entire home. When our house was assessed it doesn’t include the area of the garage & unfinished basement. Do I need to add that in to the total, or just use what the assessors office lists our home as?

 

[adjusterjack]

I live with my boyfriend in his home (owned), we split our total household expenses relatively 50/50, with him paying the mortgage & taxes while I pay most of the utilities. Does this exclude me from taking the home office deduction?

The IRS Publication 587, Business Use of Your Home, refers to "your home" throughout but does specify ownership one way or the other, though it seems to imply it in the discussion of "actual expenses."

2021 Publication 587 (irs.gov)

@Taxing Matters is a tax attorney who participates here. Stick around for his comments.

Thanks! My home office is about 125 square feet. Is there anything I need to hold onto proving the square footage? I over analyze, so I get hung up on how often they say “exclusive and regularly”. All of my teaching is done in here and it’s not used for anything else. There is a closet that we use for storage, but it’s not part of the square footage. I just keep feeling like I need to prove it’s a real deduction lol

You use the sq ft of the living space so, no, don't add the garage or basement.

Take a photo of your work room or work area. Save it in your tax files. 125 sf is about 10x12 or 11x11 is about the size of a spare bedroom. If the room or the area is used for your business, you shouldn't need anything else to justify the deduction.

 

[Hopefulteacher94]

The IRS Publication 587, Business Use of Your Home, refers to "your home" throughout but does specify ownership one way or the other, though it seems to imply it in the discussion of "actual expenses."

Yeah I was prepared to add up the utility bills I directly paid and claim the business %, but then I discovered the simplified method, which sounded good because then I wouldn’t have to try and save all the utility bills & bank statements to prove payments.

I do have actual expenses, but not as many as a normal renter/owner. This is something I could change for next tax season (2023) by switching up what we pay for so I’d have more household bills coming out of my account.

@Taxing Matters is a tax attorney who participates here. Stick around for his comments.



You use the sq ft of the living space so, no, don't add the garage or basement.

Take a photo of your work room or work area. Save it in your tax files. 125 sf is about 10x12 or 11x11 is about the size of a spare bedroom. If the room or the area is used for your business, you shouldn't need anything else to justify the deduction.

Thank you! I’ll check in for what @Taxing Matters says too. Everyone’s been so helpful here so far, I appreciate that! That’s a good idea about the picture too. The room is a small bedroom that’s almost 12x11

 

[Hopefulteacher94]

Hi! Me again Hope everyone's enjoying their week. I finally had a chance to look into this some more and reading through some of IRS Pub 587. Crunching some numbers using my actual expenses for electric+gas+internet and multiplying by 9% I got a deduction of $227.19.

I just used the expenses that I actually paid directly to the utility companies and didn't include the ones where I paid my boyfriend or that he paid himself to the utility company. The internet was also a little confusing since they just provided a single "account charge" for tv/phone/internet so I just divided it by 3. I didn't include any of the fees (since they seemed related to TV) nor the taxes & government fees because they seemed a little confusing to try to attribute the internet %.

Now the simplified method would yield a deduction of $625, which is more than the regular expenses method. I couldn't really find anything in the publication 587 specifying anything here. Seemed like you can choose either method once you meet the home office eligibility. I didn't see anything indicating you had to compare to actual expenses.

Am I missing something? Does the simplified method just assume more expenses or depreciation? Obviously a larger deduction is always more welcomed, but I don't want to do anything wrong. I also lean towards the simplified method because I then wouldn't have to worry about downloading all the utility bills & bank statements and saving them.

Also, if I am limited to the actual expenses...what would stop us from having me pay all of the bills this year (for my future 2023 taxes), it seems like anything I would pay directly I could deduct 9%, whereas if he's paying it we can't deduct any. Just hoping I understand this correctly!

 

[davew9128]

Take the safe harbor amount. The amount of mental energy being used to MAYBE save a couple of dollars is staggering.

 

[adjusterjack]

Agree.

 

[Hopefulteacher94]

Take the safe harbor amount. The amount of mental energy being used to MAYBE save a couple of dollars is staggering.

Sorry @davew9128 I was saying/confused because the safe harbor (simplified) method was the higher amount.

I’ve never taken the home office deduction because people debated my expenses since I live with someone else. That’s the only reason I wanted to put more effort into researching this topic this year.

 

[Taxing Matters]

Hi! Me again Hope everyone's enjoying their week. I finally had a chance to look into this some more and reading through some of IRS Pub 587. Crunching some numbers using my actual expenses for electric+gas+internet and multiplying by 9% I got a deduction of $227.19.

Now the simplified method would yield a deduction of $625, which is more than the regular expenses method.

Then I agree with the others: use the simplified (safe harbor) approach. Given your expenses you're not going to do better with the actual expense method, even if you are the one paying all the expenses. And its a lot less work in keeping records and completing forms. Remember, your time has value too. You have a limited supply of it, and if possible you want to spend as much of it on enjoyable things or things that will help generate income. A lot people don't take that into account, but they should.

 

[Hopefulteacher94]

Thanks everyone...I do appreciate it. I've always been scared of this deduction given my circumstances, but didn't want to miss out on anything I'm elligible for. I'm glad to have found a forum like this to ask advice for. Hope everyone enjoys thier weekend.