Learn about the simplified and actual expenses deduction methods, which method QuickBooks uses, and how it tracks everything.
If you work from a home office instead of an off-site space for your self-employed work, you may be able to deduct some of your expenses.
In general, you can claim a deduction for a home office if you use the space exclusively and regularly for business. Home office expenses are one of the biggest deductions you can get when you're self-employed. Here's a brief summary of what qualifies as a home office expense, the deduction methods, and how QuickBooks Self-Employed tracks it all.
See if your home office qualifies for a deduction
Always refer to the IRS website for the most up-to-date home office deduction info. There are two basic qualifications for a home office deduction. You only need to meet one:
A home office space
Your home office workspace must be reserved for your self-employed work only. You need to use the space regularly (also called "ongoing use") and exclusively for business. That means no one else uses the space for eating or other activities.
Your home office can be an actual room or group of rooms. It can also be an area of a room you use for other activities, such as a dining room or a spare bedroom. As long as the office area is clearly separated and obvious to anyone that it's exclusively used for business.
A space for storing business inventory
You can also claim a dedicated space in your home you use to store product samples or inventory for your business. If you use a garage, basement, attic, or spare room, you can claim square footage the inventory takes up. If it's in an area outside your home office space, like a closet on the other side of the house, you can include that too.
Keep in mind, you can only count the space space the inventory physically occupies (like a 4" x 3" corner, for example), not the entire garage or closet.
Learn about home office deduction methods
The IRS has two home office deduction methods: the simplified and actual expenses method. Both are based on square footage. Here are the latest square footage rates from the IRS. Be prepared to measure your space.
For the simplified method, all you need to do is measure the square footage of your home office space or area you store inventory.
Determine the square footage (length x width) and choose the closest home office size:
- 100 sq ft, or about the size of a small bedroom
- 200 sq ft, or about the size of a large bedroom
- 300 sq ft or more, or about the size of an average living room
The deduction is a flat rate (currently $5 per square foot) to a maximum of 300 square feet. This flat rate takes your other home office expenses like rent and utilities into account. So if your space is about 100 square feet, your deduction would be $500.
The simplified method is what we use to calculate your quarterly estimated tax payments. If you're entitled to this deduction, make sure you select a home office size in the Home Office section of the Annual Taxes page. If you don't, the deduction won't be included in your estimates.
Actual expenses method
With this method, your home office space is a percentage of your home's total square footage. The percentage determines how much of your total home expenses (like rent, utilities, insurance) can be deducted for your home office. Here's an example:
- Your home office space is 132 square feet (11" x 12")
- Your total home square footage is 1,100 square feet
- Your home office represents 12% of your entire home space
- 12% of your rent, utilities, insurance, and so on will count towards the deduction
QuickBooks uses the simplified deduction method to calculate your federal estimated quarterly tax payments and your Tax Summary and Tax Details reports. It excludes actual expenses from calculations. This lets you decide which deduction method you want to use when you file your taxes. It prevents you from counting deductions twice.
We don't use actual expenses for our calculations. We do provide special home office categories to better help you keep track of costs. At annual tax time, TurboTax or your tax pro can advise you about which method: simplified or actual is best for your situation. You can learn more about each deduction method on the IRS website.
Enter your home office square footage
Follow these steps to enter your home office square footage into QuickBooks Self-Employed.
Categorize home office expenses
When you enter or download home office expenses into QuickBooks Self-Employed, categorize them as home office expenses.
Enter everything into QuickBooks. When you're ready to file your, you'll know all of your specific expenses as well as your square footage. The totals show up in the home office category on your financial reports. With this info, you can decide to file using either deduction method.