“A lot of people are scared away from the write-offs they are entitled to in fear of an audit. Understanding what qualifies really isn’t that complicated,” says Michael Maye, treasurer/secretary of the Financial Planning Association of New Jersey. The rules are more restrictive if you are an employee (check with your accountant), but for the self-employed—even part-timers—here’s what qualifies:
Physical Office Space: Your home office area is deductible if it is your principal place of business and its use is regular and exclusive. “If you are a self-employed
electrician, and handle your finances solely at the desk in your spare room, the work space you use qualifies,” explains Maye.
Calculate with Care: The percentage of your home used for business is applicable for deduction. Divide the square footage used for work by the home’s total square feet. Use that same percentage to calculate deductions for depreciation, home insurance, repairs, security, and utilities. “Take a photo of the area and the square footage calculations and save them to show how you’ve allocated the deduction,” says Maye. One caveat: “When you move, be prepared for the percentage you’ve claimed to be recaptured from the profit of your sale,” he says.
Direct Expenses: Dedicated phone lines, Internet connections, paper, and office supplies are 100 percent deductible. Capital expenditures for equipment (computers, printers, and furniture) may qualify for an immediate write off under Section 179 up to $250,000 in a single year, subject to limitations.
Tips for Green Savings From Steve Needle:
Steve Needle of Needle Point Homes is the owner/builder of the Point at Morristown—which is New Jersey’s first Green-Globes-certified building.
Working from home is a green practice—no transportation energy. While in your home office, further your efforts:
1) Reduce, reuse, and recycle paper: Print only what you need, and remember, a one-sided print job allows you to use the other side for scrap or more printing. Keep a recycling bin nearby.
2) Employ smart surge protectors that detect when a main device is off and automatically turn off power to secondary devices. This can save up to 72 percent of energy that would be wasted.
3) Turn your computer monitor off when not in use.
4) Equip your office with compact fluorescent bulbs.
5) Try the SimpleTech Drive, which only turns on when the computer is powered up, using 90 percent less electricity than other models. A recycled aluminum enclosure dissipates heat, eliminating the need for a fan, and its bamboo veneer does not require a chemical finish. It arrives in recyclable packaging with installation directions printed on the inside.
If you enjoyed this story, you also might like this article about two work-from-home professionals who really know how to spruce up a home office. Click here to read: Office Options.