Padgett Business ServicesIn general, every business starts out of someone’s home.  Even if the business will eventually grow to a multi-million dollar business, it has to start somewhere.  The home office is usually one or two rooms in the home that are used for record keeping, storage and meetings.  The office typically has a desk, a few chairs, the computers and a closet full of stuff.  If the business does meet with clients or suppliers, the home office is where they meet.

You can have a home office right up to the time that you rent office space or shop space somewhere else.  In other words, if you are not paying rent to someone else in the world for an office, then you can claim your home office expense.  It’s when you rent outside space that the home office advantage is lost.  You simply cannot have an outside office and a home office.

So if you can claim the home office, then you will need to do a bit of work.  You need to determine the total amounts that you spend for mortgage interest or rent, utilities, condo fees, insurance, property taxes and maintenance costs.  Most of these can be determined pretty easily as they are the same amount every month for the year.  Probably the most complex calculation is the utilities because you have to find all of those crazy utility bills.  Not completely impossible but probably a bit of a pain to do.

Once you have done this, then you need to determine how much of these total costs you can claim.  To do this, you calculate what percentage your office space is to the whole house.  So if you have a room that is 10ft by 10ft, you then multiply these together to get 100 sq feet.  You then need to divide this number by the size of the total house.  The total house space would typically by the number provided to you by your real estate agent or landlord when you moved into the house.   If the house is 1000 Sq. Ft, then you divide 100 by 1000 to arrive at .10 or 10%.  Once you have this, you then multiply the total costs as described above by the percent that you have calculated to arrive at the total home office expense.  That is then the business claim you can make.