How the Simplified Method Works
Measure your dedicated home office space in square feet. Multiply by $5. That's your deduction. If your office is 200 square feet, you deduct $1,000. If it's 300+ square feet, you deduct the maximum $1,500. The space must be used regularly and exclusively for business — a kitchen table where you sometimes work doesn't count. A spare bedroom that's your full-time office does.Simplified vs. Regular Method
The regular method requires tracking actual home expenses: mortgage interest or rent, utilities, insurance, repairs, depreciation. Then you calculate the business-use percentage based on square footage. It's more work but often yields a larger deduction, especially if your home expenses are high. The simplified method makes sense when your office is small, your home expenses are modest, or you just don't want the hassle of tracking everything.Comparison: Which Method Wins?
Your office is 250 sq ft in a 2,000 sq ft home (12.5% business use). Simplified: 250 x $5 = $1,250. Regular method: Total home expenses of $24,000/year (mortgage interest $12,000, utilities $4,800, insurance $2,400, repairs $2,400, depreciation $2,400). Business portion: $24,000 x 12.5% = $3,000. In this case, the regular method saves you $1,750 more. But if your total home expenses are under $12,000/year, simplified might win.
IRS Requirements
Both methods require regular and exclusive use of the space for business. You can switch between simplified and regular methods from year to year. With the simplified method, you can still deduct mortgage interest and property taxes on Schedule A (they're not reduced by the business-use percentage). The simplified method cannot create a business loss.
Both methods require regular and exclusive use of the space for business. You can switch between simplified and regular methods from year to year. With the simplified method, you can still deduct mortgage interest and property taxes on Schedule A (they're not reduced by the business-use percentage). The simplified method cannot create a business loss.
Track Home Office Expenses
Hivebooks categorizes home office expenses automatically and can calculate both the simplified and regular method deductions, so you can choose whichever saves you more.
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