A Complete Guide to Home Office and Business Deductions

As a small business owner, you probably have many deductions for your business. But are you taking all the deductions? There are probably deductions you don’t want to make because 1. you don’t have the paperwork to support it or 2. You have paperwork, but it’s so disorganized that you don’t have the time to sort them. To make your life a little easier this time of year, I created this post with business deduction tips to simplify this process.

First, use software like Quicken or QuickBooks to track your expense transactions. 

In Quicken, create a business category under the new category, then write in the category name and write a brief description to remind you what it is for and then check the box that says “tax-related category.” This way, when you print out your end-of-year tax report, you will easily see all the items you have in a lump sum and individual totals.

One of the biggest deduction mistakes mompreneurs make is that they don’t take the home office deduction. Note: You can’t deduct a home office if you have a shop or another place you do business most of the time, however. But, if you regularly use a particular room in your house as an office, you can take advantage of this deduction. Here are some tips on deducting your home office more honestly and accurately.

Start by gathering receipts for these categories and placing them in folders. 

Repairs
Mortgage interest
Real estate taxes
Rent
Insurance (fire, theft, flood, property) – feel free to split this out into individual folders.
Cleaning services
Utilities (heating/cooking, trash removal, water delivery) – feel free to split this out into individual folders if you like.
Security systems

Along with home office deductions, there is always a question of what you can deduct under home office repairs. If you have questions, contact your accountant right before you do a project, and they can give you a clear answer on if the repair is deductible for your business.  I have seen many clients (Affiliate Link) that think their repair is deductible come to find out that it is not.

If it is deductible, keep track of the home office repairs in your account register.

In Quicken, add an account for “home office repairs.” Check off the “tax-related category” so it appears on your tax report.  Then when you add repair transactions, use this category.  Some examples of home office repairs would be painting your room, changing the carpet, installing a door, fixing the floor, and repairing a wall.

It’s important to remember that you need to have backup paperwork digitally or in paper form for all the deductions you use for your office. It can be paper receipts or digital receipts.

So, keep paper receipts organized.

The best way to keep your papers organized is to create a “Tax Return deduction” organizer. The least expensive way to do this is using a hanging folder with subfolders for each deduction. For each manila folder inside, write down one from this list on each folder. If you want individual folders for your utilities, feel free to do that instead of writing “utilities.”

How to make a tax return deduction organizer

Advertising
Car Expenses
Depreciation and Section 179
Business Insurance
Office Expenses
Supplies
Travel
Meals / Entertainment
Home Office Deduction
Home Office Repairs
Utilities – split this out into other folders as needed.
Cleaning
Mortgage statements
Real estate taxes
Security System
Other Expenses

If you don’t want a hanging folder inside a filing cabinet (Affiliate Link), you could use two(2) 13-tab accordion folders. I prefer the ones that stand up like this one. Then at the end of the year, you can buy a new one and file the entire accordion folder (Affiliate Link) away with your other tax paperwork.

Going paperless?

If you prefer not to keep bills in paper form, you can also make a directory called “Tax Return Deduction copies” on your computer and then create folders for each of the listed items above.  Then, if you have a question or get audited, the digital bills are already organized for you.

If you need additional information on your home office business deduction, check out the links below.

Must-Know Tips about the Home Office Deduction by IRS.gov

FAQs – Simplified Method for Home Office Deduction by IRS.gov

The Home Office Deduction by TurboTax

Secrets Of Claiming A Home-Office Deduction by Forbes

Complete List of Self-Employed Expenses and Tax Deductions by QuickBooks

Well, there you have it. I hope this helps you with your home office and business deductions. Remember, having a system you can use each year will eliminate the guesswork on where you placed a bill or invoice.

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