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Tax tips for authors: Taking the home office deduction

Many people believe that taking the home office deduction makes you automatically audited or that it drastically increases your chances of being audited. I don’t think it automatically causes you to be audited, but I do believe that it is something that auditors look at, and it does, I believe, increase the chance of you being audited, albeit still a small chance.

The home office deduction is reported on your Schedule C, and it allows you to take deductions for the business use of your home. The rules are pretty straightforward on this — the IRS says that the portion of your home must be used exclusively for business and on a regular basis. And so for most authors I work with they have a section of their home that is their office that has their computer and their library. They use it on a regular basis for that purpose, and there is no other place that they can do the work outside of their home.

To figure out the home office deduction that you’re allowed, you take the total square footage of your home and the square footage of the space you are using in your home for business, and determine which percentage of that square footage is your home office. You apply that percentage to expenses that normally would not be deductible on your Schedule C, for example, a percentage of your mortgage interest, real-estate taxes, (or rent) homeowner’s insurance, your utility bills,  etc.  The more deductions you have on your Schedule C, the lower your taxable income is, and the less tax you pay. Your Schedule C income is subject not only to federal and state taxes, but also to self employment tax, so you get a lot of benefit by taking advantage of the home office deduction.

While interest and real estate taxes are already deductible on Schedule A as an itemized deduction and is more beneficial to allocate a portion as a home office deduction if you are using part of your home for business and then put the non-business portion on the Schedule A.

The result is that your federal and state taxes don’t differ in either method but the part you put on Schedule C saves you self-employment tax.

Robert M. Pesce, Partner, Marcum LLP, provides significant tax saving strategies and business advice that enables his clients to become more profitable and efficient.

Read the other installments in this series:

Learn how your agent is reporting your writing income

Understand foreign taxes, tax credit and tax certification

3 Simple steps to organizing your business expenses

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