Empowering Healthy Business Podcast Episode 43 : How Business Owners Can Maximize the Home Office Tax Deduction
Working from home has become the norm for many entrepreneurs and small business owners. But while the shift has brought flexibility, it has also raised questions about what expenses are deductible. On a recent episode of the Empowering Healthy Business Podcast, host Calvin Wilder sat down with Greg Reed, Head of Tax at SmartBooks, to clear up misconceptions and explain how business owners can take full advantage of the home office tax deduction.
Clearing Up Common Misconceptions
One of the biggest myths Greg encounters is that business owners with a separate office space cannot claim a home office deduction. That’s not true. Even if you rent or own an office elsewhere, you can still deduct expenses for a dedicated workspace in your home — as long as it is used regularly and exclusively for business.
It’s important to understand that this deduction is not tied to an old IRS program for unreimbursed employee expenses. Instead, it applies specifically to business owners and how they manage operating expenses.
What Qualifies as a Home Office?
To claim the deduction, you must have a space in your home that is consistently used for business. A dining room table used occasionally won’t qualify, but a dedicated room or defined office area will. Minimal personal use, like keeping a set of golf clubs in the corner, is acceptable as long as the primary use is business-related.
Once you establish that a room qualifies, you can begin to calculate deductible expenses in two main categories: home office items and real estate costs.
Deductible Home Office Expenses
Items Inside the Office
Business owners can deduct many common purchases for their office setup, such as:
- Desks, chairs, file cabinets, and shelving
- Computers, printers, and other equipment
- Whiteboards and office furnishings
Ideally, these items should be purchased directly through the business. But if you use personal funds, such as buying a printer at Costco, you can still allocate the expense. Even shared-use furniture can be partially deducted — for example, if a desk is used 80% for business, you can claim 80% of its cost.
Real Estate and Utility Costs
Beyond equipment, the real savings often come from applying the home office percentage to larger household expenses. These include:
- Mortgage interest or rent
- Real estate taxes
- Utilities (electricity, internet, water, etc.)
- Homeowners insurance and security systems
- Repairs or improvements that affect the entire house
The deduction is calculated by dividing the square footage of your office by the total living space in your home. If you have a 1,000-square-foot home with a 100-square-foot office, 10% of qualifying household expenses become deductible. Typically, most business owners fall within the 10–20% range.
Advanced Considerations: Depreciation and Renovations
Some owners may also benefit from depreciating a portion of their home used for business. For example, if 15% of a property qualifies as a home office, that percentage of the home’s cost basis (excluding land) can be depreciated over 39 years. However, depreciation has long-term implications when selling your home, so it’s important to work closely with your accountant.
Renovations are another area to explore. Painting, updating furniture, or making minor improvements are fully deductible. Larger buildouts or structural changes, such as installing a new roof or HVAC system, generally fall under long-term depreciation rules.
Best Practices for Reimbursements and Documentation
Greg recommends that business owners reimburse themselves for home office expenses on at least a quarterly basis. This process mirrors how an employee would submit an expense report and ensures that deductions are recognized in the correct tax year.
Documentation is critical. Keep receipts, maintain expense reports, and consider taking photos or keeping a usage journal if your office has partial personal use. These practices help support your claim in the unlikely event of an IRS audit.
Additional Benefits: Mileage Deductions
If your home office is considered your principal place of business, you may also deduct mileage when traveling to client sites or other offices. This can add meaningful savings. For example, 2,000 business miles at the IRS mileage rate translates into over $1,000 in additional deductions.
Conclusion: Don’t Miss This Opportunity
The home office tax deduction is one of the most valuable — and often underused — benefits available to small business owners. By identifying a qualifying space, tracking expenses carefully, and reimbursing yourself properly, you can significantly reduce your tax burden. As Greg Reid notes, most business owners qualify for this deduction in today’s work environment. If you haven’t taken advantage of it yet, now is the time to start.
Click here: Listen to the full episode of the Empowering Healthy Business Podcast