As best practice at Heard, we recommend updating your tracker quarterly during the year. The home office deduction is then applied to your annual taxes to maximize deductions.
What is the Home Office Deduction?
The home office deduction allows eligible taxpayers, such as Sole Proprietors, to deduct certain expenses related to the business use of their home. It is primarily for self-employed individuals or independent contractors.
To qualify, you must use a specific area of your home exclusively and regularly for your business. This deduction helps maximize tax savings by allocating a portion of home-related costs to business expenses.
Where can I find the template?
During onboarding, you will have received a copy of the Home Deduction Tracker. You can make a copy using this link: Home Office Deduction Tracker - Heard.
Which expenses qualify for the home office deduction?
There are several expenses that qualify each month.
- Excess Mortgage Interest
- Excess Real Estate taxes
- Insurance
- Rent
- Repairs and Maintenance
- Electricity
- Water/Sewage
- Internet
- Other expenses
Heard’s tracker accounts for each direct or indirect expense in the Home Office Tracker.
What are indirect expenses?
These costs are incurred when owning the home as a whole. These expenses will be allocated to the home office based on the square footage used exclusively for business, divided by the home's total square footage.
These are the total costs of owning or renting the home as a whole. These expenses will be allocated based on the square feet used exclusively for business. For example, when you're entering your total rent, you'll add up all of the monthly payments you made during the previous year, and the percentage related to your business space will be applied to the total.
What are direct expenses?
This includes costs directly associated with your home office.
These are costs specific to your home office. This isn't likely to be a general utility bill. These kinds of costs include renovating your home office or addressing a maintenance issue in the office itself.
Completing the Home Office Deduction Tracker
- The amounts you enter on the HOD form shouldn't already be in your Heard books. This means these are expenses you have paid as a renter or homeowner, and you are only claiming the amounts in this deduction.
- If you are itemizing your deductions and claiming some amounts on your Schedule A, then you cannot claim them on the forms in the HOD section. You will need to allocate those expenses between personal (Schedule A) and business use (HOD).
If you're using the standard method, you must report actual expenses. Do not enter estimates. (See below for differences between the standard and simplified methods.)
Should I use my personal or business account to pay for office repair expenses?
A personal account should be used to pay for office repairs. These repairs done inside the office would be classified as direct costs.
What expense category should I use in Heard for these transactions?
Home office costs should not be included in your Heard books. Instead, use the HOD tracker to update the associated costs. At the end of the year, you would provide the tracker to your tax preparer so they can include the deduction on your tax return.
How often should I complete the Home Office Deduction tracker?
We recommend updating your home office deduction tracker quarterly. If you’d like to be proactive, you may also update monthly and upload to Your Practice > Documents > Taxes.
We will request a copy of your completed tracker as part of your annual tax documentation. Your tax preparer will perform a final review at the end of the year to ensure all amounts entered are accurate and can be included in your annual tax return.