How to Write-off the Home Office Deduction | Mark J Kohler

Foreign. How do I maximize the home office deduction? Okay, Tanya in Illinois, maximizing home office deduction. First, people, do not listen to your accountant if they say this is a high risk item. Don't try to write off home office, you'll get audited. Bullcrap. I cannot say that enough. You're entitled to the write off. You should take it. So there's been new legislation on this in the last five years that makes it even easier and ethically and validly available for you as a small business owner. I'm going to break it down right here on the whiteboard. So, home office deduction. I'm going to tell you this. I look for this on every client's tax return. My team is trained to do that. I don't care if you have a rental property, an online business, consulting business. You have a, you're a doctor at an office during the day. You are entitled to the home office. And I'll explain why. Now the first thing you need to know is there's two ways to go after the deduction. The simplified and then what has been generally known amongst us professionals is the standard. Now the simplified is just that, it's $5 per square foot up to 300 square feet. $1,500. Done. That's per year. Now some of you are like 1500 bucks. I can write off more per month. Yeah, sure, we'll go over the standard method in a minute. But the simplified method, easy schmeasy, no audit risk, keep it simple. Fifteen hundred bucks, just be done with it. And the IRS is not going to chase you down for fifteen hundred dollar write off unless you've got a bunch of other garbage on your tax return they're coming after you for. And I want you to do it honestly. You got to have that home based business with income and yada yada. But this is $5 times 300,000,000. Okay, now what's fun here? And I wish we could show the clip without getting into copyright problems, but in the movie, the accountant Ben Affleck's at the table. This is in the first 15 minutes of the show. And the little farmer couple was there and they're paying too much in tax. And he asked the wife, do you have a, do you, Where'd you buy that necklace? Do you want to, don't you like it? And he's like, no. And he goes, do you sell it? She goes, yeah, at the bazaars, in the church. And da, da, da. And he walks him through it. And the first question he says, where do you make your little necklaces? She sat at the kitchen table and she, he explains and takes the simplified write off right there. He explained the 300 square feet, $5 right there in the movie, the Accountant KK movie by the way. Okay, now that's a simplified method and you can only take one home office deduction. So if you have a rental property business and then an online business, if you take the 1500 over here, you can't take it twice. The IRS is like, you only have one home office. 750 here, 750 there. That's cool. But that's, that's it. Okay, now standard, you're going to take the square footage of your whole house. So there's your total square footage. And then you're going to divide out how much square footage is for my home office. So if this is your home office, you do the math and you divide it out and you'd say okay, 100 square feet or let's say 200 square feet by divided by 2,000 total square feet. And this could be your apartment, it could be a rental, you could own the house, do not care. But you've got to find the home office percentage. 200 divided by 2000. We're going to have a 10% home office percentage. Then you're going to take 10% times your rent or 10% times your mortgage interest or in 10% times your utilities, HOA's, blah blah blah, blah blah blah blah blah blah. Anything related to your house now you can have and you're going to get depreciation as well on a per portion of the home. Now there is what's called recaptures. When you go to sell your house someday you, you'd have to recapture this amount of depreciation. But it's an interest free loan from the irs. Save taxes now. All right, I'll give the tax back later. I'll use the money interest free loan, but that's only on this portion, so don't stress. This is about that. This is a wonderful write off. So you're going to choose simplified or standard. I'd say about now 80% of our clients are going simplified because it's easier. There's no depreciation recapture either. Now here in my book, the Tax and legal Playbook, chapter nine is where I talk about the home office deduction. You can get it on Kindle, pick it up on Amazon Prime, Easy schmeasy. I go through two and a half pages of this and here's the other quandary and you Tax professionals out there. Go, Mark, you oversimplifying. You got to meet two tests. It's got to be your regular. And this is right out of the code. Regular and exclusive use. If you're going to go in there and return emails in your underwear, on Facebook or whatever, that's personal use. So it's not exclusive. You don't get to do it. Hold on. And then the second rule. It has to be your principal place of business. Now, this is why accounts say this is high risk, because you'll never qualify. Don't take this. Not Ben Affleck in the accountant. He knows what's going on. You have to meet both of these to get it. Well, a doctor that has an office in town says, well, this isn't my principal place of business, but I come home at night and do work. What the heck? So about six years ago, a doctor up in the Northeast took the IRS to court, so this is bullcrap. And he goes, I have a doctor's office, so it's not my principal place of business. And I'll return emails or go in and do Facebook late at night or whatever and talk to my kids, but I deserve this write off. And he went to court, and the judge said, you're right, you do. And if you go home to do office duties in a home office, it's called now the administrative office exception. Now, every one of my clients is doing admin at home for their business. I am. And it's legit. It's honest. You deserve this administrative use exception. All right? So don't stress about these two things. If your accountant freaks out, send them this YouTube video of mine. Send them a copy of my book for Christmas, Tax and Legal playbook. I give classes to other accountants on this. I love it. It's a great write off. Choose the simplified or the standard. Go Ben Affleck. All right, there you go. That's.