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.
The Home Office Deduction is separate from other direct office business expenses we track in Heard, such as office supplies or furniture. We ask additional questions about home office expenses as part of our information-gathering tax process, as these expenses are paid on a personal card and, therefore, are not accounted for in Heard.
How does Heard track Home Office expenses for Sole Proprietors?
During tax season, we will request a copy of your completed Home Office Deduction 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.
We recommend updating your home office deduction tracker on a quarterly basis. If you’d like to be proactive, you may also update monthly and upload to Heard. Please see Using Heard's Home Office Deduction Tracker.
How are Home Office expenses deducted for S Corps?
S-Corps are not eligible for the home office deduction. However, S-Corps can have the business reimburse the owner for a portion of the home-related expenses and other qualified expenses. When done correctly, these expenses will not be considered wages, and the reimbursement will not be taxable.
To do so, you would first need to create an Accountable Plan that defines a uniform policy for reimbursing these costs for employees of your company, including yourself. Although the IRS doesn't require that this policy be documented in writing, it does require that it be an established policy.
You can use this Accountable Plan template as a starting point for defining your plan. For more, please see Creating an Accountable Plan.