The Home Office Deduction is available to Sole Proprietors who use a home office for their business for more than 60% of their work week. Home office expenses include utilities, repairs & maintenance, homeowner's or renter's insurance, rent of your home, and other expenses related to your home.
In order to calculate how much can be written off as a business cost, we ask what percentage of your home is exclusively used for business. 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, Heard will request home office totals, along with the square footage of your office compared to your home, via the Personal Tax Checklist (Taxes > Annual). Then, your tax preparer will add these to your business tax deductions on your tax return.
Maintaining thorough and organized records will help substantiate your home office deduction and make the process smoother if you are audited. Feel free to utilize this template to maintain your records: Heard: 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 count as wages, and the reimbursement won't 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. Though the IRS doesn't require that policy to be documented in writing, they do require it to 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.