February 7, 2025 • 20 mins
Unlock the secrets to maximizing your tax savings with expert insights from Daniel, the founder of Bookkeeping for Painters, and Richard, the advising director. Discover how the home office deduction can transform your business finances, whether you're an entrepreneur running a painting company or managing a side hustle. This episode promises to arm you with practical strategies to leverage IRS home office definitions, ensuring that every square foot of your dedicated workspace contributes to lowering your tax bill. From the simplified method to corporate complexities, we cover it all, helping you claim a portion of your home expenses as valuable business deductions.
Embark on a journey to smarter tax deductions as we explore not just the basics but the intricacies of home office use. Even if your workspace is part-time, learn how it can still qualify for significant savings. We'll unpack the benefits of additional deductions, such as business mileage and office upgrades, and reveal how accountable plans for S-Corps or C-Corps can facilitate tax-free reimbursements. This is your guide to turning home office expenses into a powerful tool for reducing taxable income and boosting those tax refunds. Whether you're a family member supporting a side gig or a seasoned business owner, this episode is your roadmap to savvy financial management.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 2 (00:00):
This is Daniel, the founder of Bookkeeping for
Painters and this is Richard,the advising director and we've
got some really cool tax savingstrategies to talk about today,
Something that I think almostevery business owner can benefit
from, and possibly other familymembers too, if they have a
side gig or a side hustle.
This is probably one of themost popular topics that comes
(00:24):
up in our tax planning, and thatis the home office deduction.
I think it's something thatpeople hear about a lot but
might not know how to implementit, or at least how to get the
most out of it.
So, Daniel, I thought maybe wecould talk a little bit today
about how that works.
Whether you're a soleproprietor side hustle or you've
(00:46):
got a corporation, the homeoffice deduction is available.
How you're going to go aboutgetting it's going to be a
little bit different, and Ithought we could talk about the
ins and outs on that.
Speaker 1 (00:59):
Yeah, let's do it.
I think this is a greatdeduction strategy for painting
business owners because moreoften than not especially from
the zero to $1 million phasemost folks are doing a lot of
administrative work out of theirhomes and some of them don't
(01:22):
realize that, hey, I canactually get some money back
from the government because I'musing this dedicated area in my
home to do work for my businessand this can actually result in
a tax deduction.
So it's perfect for a lot ofpainting businesses that don't
have a separate office, thatalready established, and in some
(01:45):
cases, even when they do have aseparate shop or something.
It might even apply in some ofthose cases as well.
So I think this is great.
Speaker 2 (01:53):
Yeah, absolutely so.
I think the first thing we haveto understand is you know what
do we mean by a home office.
They can take a lot ofdifferent shapes, sizes, looks,
but the IRS definition of a homeoffice is an area that is used
regularly and exclusively forbusiness.
(02:16):
Now, it's a little bit of avague definition.
It does not necessarily have tobe a dedicated room.
You know, personally, I haveone of my.
We have a three-bedroom houseand so our smallest bedroom is
my office.
But you don't have to have aseparate room.
You could use a dedicatedportion of your living room or a
(02:36):
portion of your family room foryour office, as long as that
area is used exclusively forbusiness.
Where you could get in troubleis if you do business in an area
that's also used for personaluse.
So think, like you know, if youwere to set up your laptop at
your kitchen table, that youjust had dinner at and you do
(02:58):
some work, that does not turnyour kitchen table into a home
office, because it's also beingused personally.
So we want to be careful thatwe keep things exclusive, and it
does matter in an audit.
I have heard some horrorstories of the IRS denying
deductions because of that.
Speaker 1 (03:20):
But you know, I was going to say because if we could
just work anywhere in our homesand it would be deducted, my
whole house, like every squareinch of my house, would be
deductible, because I'mliterally just working
everywhere in my house likethroughout the day.
So that's, that's too bad,because I'm always working in my
house every which way that thekitchen table, if it's in my
(03:44):
room, or whatever.
So that sucks.
So we got to actually choose aplace and use it regularly and
exclusively in one place.
It sounds like.
Speaker 2 (03:55):
Yes, yes, you are taking a small portion or maybe
a large portion of your home andsaying I'm no longer going to
use this for personal use, thisis just for business, and that
portion can be deducted.
The other qualification andthis one does come with a caveat
(04:17):
is that it needs to be theprincipal of business.
So what you can't do is rent anoffice downtown, deduct all the
rent on that space and thenalso have a home office that is
your principal place of businessand deduct the expense of that
(04:38):
place.
You can imagine a situationwhere you have multiple offices
all over the place trying totake deductions and that doesn't
work.
If you're going to write off aspot in your home, it does need
to be the principal place ofbusiness.
However, there is a little bitof a carve out here.
Some people, especially painters, may have an industrial area
(05:02):
that they keep their trucks andsupplies and materials, but
there's no part of thatindustrial area that's suitable
for administrative or managementtasks.
They might not have a niceoffice that's air-conditioned
and appropriate for running thebusiness.
In that case, you can have anadministrative office in your
(05:26):
home, as long as it is theprincipal place where you're
running your business and doingthe administrative and
management work in addition toan industrial area or a retail
storefront or something likethat.
But you do have to pick onespace that's going to be the
administrative center of yourbusiness and, like we mentioned,
(05:48):
you know it doesn't have to befancy.
You know, fold out desks,convert a corner of a room,
maybe get some of those.
You know, I wouldn't say builda cubicle in your family room
your spouse might not appreciatethat but maybe one of those
nice little screens, that kindof block thing off a little bit,
that would be a great way tokind of dedicate an area as your
(06:09):
administrative office.
So once we've decided that wedo have a home office, now we
can talk about how much we'regoing to be able to write off.
So there's two ways of doingthis.
I'm going to start off with thesimple and easy way, and this
way applies if you are a soleproprietor, and then we'll talk
about the more difficult way.
(06:30):
And if you have a corporation,then you're going to be stuck
doing the more difficult way.
But let's talk about thesimplified method.
The IRS has a shortcut method.
It is you take the squarefootage of your home office and
you multiply that by $5 persquare foot up to a maximum of
300 square feet.
(06:50):
So if your third bedroom is 10by 12 feet, that's 120 square
feet.
That is $600 that you can writeoff using the simplified method
.
What's cool about that is thatyou don't need to keep any
receipts.
You don't need to worry aboutyour mortgage interest or your
property taxes.
(07:11):
You definitely don't have toworry about depreciation.
It's just quick, easy fivebucks per square foot Perfect
for smaller homes or people whodon't want to have to keep
complex records.
Speaker 1 (07:24):
And that's $600 for the year as a deduction, not per
month.
Speaker 2 (07:30):
Yes, yeah, I'm sorry, it's $5 per square foot per tax
year.
Speaker 1 (07:35):
Yeah, and so if you're thinking to yourself,
that doesn't seem like very muchfor a significant portion of my
home, like a whole bedroom, tobe dedicated to a home office.
Well, this is the easy way.
So the IRS is going to make iteasy, but it's going to be
favorable to them to claim thistype of deduction the simplified
(07:55):
method per square foot, andit's easy, but it's not going to
likely be the most advantageousthe most tax deductions versus
the other method that you'reabout to cover.
Speaker 2 (08:19):
Yeah, yep, that's true, there is a trade-off there
.
Now the regular method is wherewe have to do some math and
that is where we're going tofigure out a percentage of the
home expenses.
So, again, we need to know thesquare footage of our dedicated
space that we're using as a homeoffice.
I'm going to stick with my 120square foot example and then we
need to know the square footageof the entire house.
(08:39):
So if you have 120 square footoffice and you live in a 2,000
square foot home, you divide 120by 2,000 and you come up with
6%.
That means you're going to beable to write off 6% of your
household expenses.
So the interest on yourmortgage we'll talk about the
(09:01):
mortgage payments a little bitlater Property taxes, utilities,
repairs and maintenance,anything that affects the entire
home as a whole, you're goingto write off 6% of that.
You're also going to write offdirect expenses.
So if you had to pay to repaintthat office to make it suitable
(09:24):
, that's a direct expense tothat room.
That's going to be 100%deductible.
Same thing if you had toreplace the flooring or maybe
the window treatments thosedirect expenses that affect the
home office directly.
Those are 100% deductible.
Now what about your actualmortgage payment, because that's
(09:45):
probably your biggest expense?
Well, we don't write offmortgage payments because those
are loans, but we can write offdepreciation.
This is where it does become alittle bit tricky.
Your house is going to bedepreciated over 27 and a half
years, so you're going to takethe original purchase price of
(10:08):
your home plus any significantmoney that you've put into your
house through like remodels oradd-ons or things like that, and
you're going to add thattogether to come up with your
basis, and then you're going todivide that by 27 and a half and
multiply it by 6%.
So easy, easy right Like I haveto get the back of the napkin
(10:34):
in the calculator, but that'sgoing to be your depreciation
expense on your home office.
And this is why I kind of steerpeople towards the simplified
method a lot of times, becausethis is a lot of math and, in
addition, it's a lot of recordkeeping too right, because we
would need to be able to provethese expenses if we got audited
(10:55):
.
And finally, there's one otherdownside of the regular method,
and that has to do with when yousell your home.
See, normally when you sellyour home, as long as you don't
make more than $250,000 ofprofit per spouse, you don't
need to worry about taxes.
But if you use the regularmethod and you start taking tax
(11:18):
deductions for the depreciationon your home, you have to
recapture that depreciation whenyou sell, basically pay those
tax deductions back, and thatcan be a real pain in the neck
when it comes time to sell yourhouse.
So if you are going to do thestandard regular method, you
(11:39):
probably want to talk to youraccountant and make sure you
have a plan for handling that.
And if you're thinking, well, Ilike the standard method but I
don't want to have to worryabout depreciation recapture, so
I just won't take thedepreciation portion.
Unfortunately, that doesn't work.
The standard is you mustaccount for depreciation that is
(12:01):
allowed or allowable, whichmeans even if you didn't take it
, the IRS still requires you topay it back.
So have a conversation withyour tax professional before you
go down that road.
All right, what if you're onlyusing the office, say part-time?
(12:22):
You're only using the office,say part-time.
Well, that definition ofregular is a little ambiguous.
You don't need to spend 40hours in your home office in
order to have it as a deduction.
You know, even just a few hoursa week, as long as it's on a
somewhat regular basis a week,as long as it's on a somewhat
(12:43):
regular basis, would qualify forthat deduction.
It still has to be exclusiveright, so we can't be using it
to put up our relatives duringthe holidays or have like a man
cave when we're not working.
But we don't have to feel likewe need to be in there for hours
and hours on end in order toqualify.
Speaker 1 (13:04):
What you could do is, in your man cave, allocate a
specific area that you useregularly and exclusively for
business, as long as the mancave activities are not
occurring in that area.
So it could be a portion ofthat room in your man cave,
right.
Speaker 2 (13:30):
Yes, it would be like an office cave in the man cave
in your house.
You have, like inception leveldeductions going on here.
But no, you're absolutely right, daniel.
Of course, whatever you know,you wouldn't write off the
entire man cave, just the cornerthat you've sectioned off for
sure, and this is nice.
Maybe you have a family memberwho has a side hustle and they
(13:50):
want to take an office deductiontoo.
Have them carve out a spot,even if they only use it
part-time, as long as it'sexclusive for business, they can
get that deduction off of theirbusiness taxes as well.
All right, why does this reallymatter?
Well, I mean, one, we're savingmoney, right, obviously.
(14:12):
But two, we're also unlockingsome additional tax deductions.
One of the big ones has to dowith auto mileage, and we're
very familiar with taking ourmileage as a tax break.
But we want to be careful thatwe're not including what's known
as commuting miles.
(14:32):
So if you drive your car fromyour home to your rented space
that you do business out of,that commute is non-deductible.
Once you leave your rentedspace and maybe go to a work
site or go do some estimates,drop off some proposals, that
would be business mileage.
(14:53):
But the drive from your home toyour primary place of business
is a commute and non-deductible.
Well, what if your primaryplace of business is also your
home?
Now, whenever you jump in thecar, you've just added extra
mileage that can be written off.
So, for example, the differencebetween having a rented space 10
(15:17):
miles away from your house andhaving your home as your primary
admin place of business anextra 10 miles a day times five
days a week, times 50 weeks ayear, if we were to use, say,
the 70 cents per mile, we wouldbe looking at about an
additional $1,750 of tax savingsper year.
(15:41):
So just something to kind ofthink about.
You know, on top of the regularhome office deduction, we could
be unlocking some extra thingstoo.
There's even opportunities toput artwork and decorations in
your home office.
I believe you're allowed up to$300 for artwork, so maybe it's
(16:07):
a good opportunity to get thatum, you know copy of the Picasso
that you've always wanted, thatthat inspires you to to paint.
Speaker 1 (16:11):
So you can go.
Speaker 2 (16:13):
You can go purchase some artwork and put it in your
home office and deduct that upyeah, maximum up to 300 yeah, I
mean it should probably be likeoffice appropriate artwork, but
you know, dogs playing poker.
If that inspires you to to,that's fine.
But yeah, um, you know samething with like window
(16:34):
treatments.
Um, good chance to to repaintthe room or replace the flooring
, replace the lighting and getthe deduction for that.
All right, we mentioned S-Corps, so S-Corps and C-Corps are a
little bit different.
We're not able to use thesimplified method with the
(16:55):
S-Corp and we're actually notable to directly deduct things
with the S-Corp.
We have to do a little bit of aroundabout method and it's not
a problem.
That's why we have accountableplans.
So an accountable plan ifyou've been listening, you know
this already it's a fancyreimbursement plan that meets
IRS requirements.
(17:15):
Reimbursement plan that meetsIRS requirements, and so the
company, the corporation, isgoing to reimburse you for the
use of your home.
You can't use the $5 per squarefoot simplified method.
You're going to have toactually go and do the standard
method.
But once you figure out whatthose amounts are, you're just
going to have the corporationwrite you a check and reimburse
(17:37):
you.
Now, that payment is a rentexpense to the corporation.
That's how you get your taxdeduction and the money you
receive as the employee who'sbeing reimbursed is not taxable
to you.
So it's a nice way to get sometax-free distributions out of
(17:58):
your company while still gettingthe office deduction.
Additionally, you might haveequipment, supplies, office
expense that you want to put onyour accountable plan.
You may be storing inventorymaterials, things like that.
Make sure that you're gettingreimbursed for that as well.
(18:20):
And if you do drive yourpersonal vehicle for the
business, track your miles, payfor the expenses yourself, track
your miles and have the companyreimburse you.
It's up to $0.70 per mile in2025.
That's the highest it's everbeen.
It can usually be prettylucrative as long as you have a
(18:41):
vehicle that's somewhat fuelefficient and not too terribly
expensive to operate.
So the home office deduction asa financial strategy.
It reduces your taxable income.
It boosts the amount of therefund that you're going to get.
It's a great opportunity tohave the IRS help you pay for
(19:03):
something that you're paying foralready.
It does not require yougenerally to spend new money
we're going after misseddeductions here and it can also
help unlock savings for familymembers who have their own side
hustles or part-timeentrepreneurs.
I think it's a greatopportunity.
(19:24):
It's something that often getsmissed, and so if you can carve
out a spot of your home, it isdefinitely worth trying to do
that.
Trying to do that If you haveany questions about the home
office deduction or making surethat you dot your I's and do it
correctly, you can certainly askthose in our Facebook group,
(19:47):
grow your Painting Business.
We'd love to see your commentsthere and answer any questions
that you have.
And until next time, weappreciate you listening and
we'll have some more tax savingstrategies on the next episode.
This is Daniel, the founder of Bookkeeping for
Painters and this is Richard,the advising director and we've
got some really cool tax savingstrategies to talk about today,
Something that I think almostevery business owner can benefit
from, and possibly other familymembers too, if they have a
side gig or a side hustle.
This is probably one of themost popular topics that comes
(00:24):
up in our tax planning, and thatis the home office deduction.
I think it's something thatpeople hear about a lot but
might not know how to implementit, or at least how to get the
most out of it.
So, Daniel, I thought maybe wecould talk a little bit today
about how that works.
Whether you're a soleproprietor side hustle or you've
(00:46):
got a corporation, the homeoffice deduction is available.
How you're going to go aboutgetting it's going to be a
little bit different, and Ithought we could talk about the
ins and outs on that.
Speaker 1 (00:59):
Yeah, let's do it.
I think this is a greatdeduction strategy for painting
business owners because moreoften than not especially from
the zero to $1 million phasemost folks are doing a lot of
administrative work out of theirhomes and some of them don't
(01:22):
realize that, hey, I canactually get some money back
from the government because I'musing this dedicated area in my
home to do work for my businessand this can actually result in
a tax deduction.
So it's perfect for a lot ofpainting businesses that don't
have a separate office, thatalready established, and in some
(01:45):
cases, even when they do have aseparate shop or something.
It might even apply in some ofthose cases as well.
So I think this is great.
Speaker 2 (01:53):
Yeah, absolutely so.
I think the first thing we haveto understand is you know what
do we mean by a home office.
They can take a lot ofdifferent shapes, sizes, looks,
but the IRS definition of a homeoffice is an area that is used
regularly and exclusively forbusiness.
(02:16):
Now, it's a little bit of avague definition.
It does not necessarily have tobe a dedicated room.
You know, personally, I haveone of my.
We have a three-bedroom houseand so our smallest bedroom is
my office.
But you don't have to have aseparate room.
You could use a dedicatedportion of your living room or a
(02:36):
portion of your family room foryour office, as long as that
area is used exclusively forbusiness.
Where you could get in troubleis if you do business in an area
that's also used for personaluse.
So think, like you know, if youwere to set up your laptop at
your kitchen table, that youjust had dinner at and you do
(02:58):
some work, that does not turnyour kitchen table into a home
office, because it's also beingused personally.
So we want to be careful thatwe keep things exclusive, and it
does matter in an audit.
I have heard some horrorstories of the IRS denying
deductions because of that.
Speaker 1 (03:20):
But you know, I was going to say because if we could
just work anywhere in our homesand it would be deducted, my
whole house, like every squareinch of my house, would be
deductible, because I'mliterally just working
everywhere in my house likethroughout the day.
So that's, that's too bad,because I'm always working in my
house every which way that thekitchen table, if it's in my
(03:44):
room, or whatever.
So that sucks.
So we got to actually choose aplace and use it regularly and
exclusively in one place.
It sounds like.
Speaker 2 (03:55):
Yes, yes, you are taking a small portion or maybe
a large portion of your home andsaying I'm no longer going to
use this for personal use, thisis just for business, and that
portion can be deducted.
The other qualification andthis one does come with a caveat
(04:17):
is that it needs to be theprincipal of business.
So what you can't do is rent anoffice downtown, deduct all the
rent on that space and thenalso have a home office that is
your principal place of businessand deduct the expense of that
(04:38):
place.
You can imagine a situationwhere you have multiple offices
all over the place trying totake deductions and that doesn't
work.
If you're going to write off aspot in your home, it does need
to be the principal place ofbusiness.
However, there is a little bitof a carve out here.
Some people, especially painters, may have an industrial area
(05:02):
that they keep their trucks andsupplies and materials, but
there's no part of thatindustrial area that's suitable
for administrative or managementtasks.
They might not have a niceoffice that's air-conditioned
and appropriate for running thebusiness.
In that case, you can have anadministrative office in your
(05:26):
home, as long as it is theprincipal place where you're
running your business and doingthe administrative and
management work in addition toan industrial area or a retail
storefront or something likethat.
But you do have to pick onespace that's going to be the
administrative center of yourbusiness and, like we mentioned,
(05:48):
you know it doesn't have to befancy.
You know, fold out desks,convert a corner of a room,
maybe get some of those.
You know, I wouldn't say builda cubicle in your family room
your spouse might not appreciatethat but maybe one of those
nice little screens, that kindof block thing off a little bit,
that would be a great way tokind of dedicate an area as your
(06:09):
administrative office.
So once we've decided that wedo have a home office, now we
can talk about how much we'regoing to be able to write off.
So there's two ways of doingthis.
I'm going to start off with thesimple and easy way, and this
way applies if you are a soleproprietor, and then we'll talk
about the more difficult way.
(06:30):
And if you have a corporation,then you're going to be stuck
doing the more difficult way.
But let's talk about thesimplified method.
The IRS has a shortcut method.
It is you take the squarefootage of your home office and
you multiply that by $5 persquare foot up to a maximum of
300 square feet.
(06:50):
So if your third bedroom is 10by 12 feet, that's 120 square
feet.
That is $600 that you can writeoff using the simplified method
.
What's cool about that is thatyou don't need to keep any
receipts.
You don't need to worry aboutyour mortgage interest or your
property taxes.
(07:11):
You definitely don't have toworry about depreciation.
It's just quick, easy fivebucks per square foot Perfect
for smaller homes or people whodon't want to have to keep
complex records.
Speaker 1 (07:24):
And that's $600 for the year as a deduction, not per
month.
Speaker 2 (07:30):
Yes, yeah, I'm sorry, it's $5 per square foot per tax
year.
Speaker 1 (07:35):
Yeah, and so if you're thinking to yourself,
that doesn't seem like very muchfor a significant portion of my
home, like a whole bedroom, tobe dedicated to a home office.
Well, this is the easy way.
So the IRS is going to make iteasy, but it's going to be
favorable to them to claim thistype of deduction the simplified
(07:55):
method per square foot, andit's easy, but it's not going to
likely be the most advantageousthe most tax deductions versus
the other method that you'reabout to cover.
Speaker 2 (08:19):
Yeah, yep, that's true, there is a trade-off there
.
Now the regular method is wherewe have to do some math and
that is where we're going tofigure out a percentage of the
home expenses.
So, again, we need to know thesquare footage of our dedicated
space that we're using as a homeoffice.
I'm going to stick with my 120square foot example and then we
need to know the square footageof the entire house.
(08:39):
So if you have 120 square footoffice and you live in a 2,000
square foot home, you divide 120by 2,000 and you come up with
6%.
That means you're going to beable to write off 6% of your
household expenses.
So the interest on yourmortgage we'll talk about the
(09:01):
mortgage payments a little bitlater Property taxes, utilities,
repairs and maintenance,anything that affects the entire
home as a whole, you're goingto write off 6% of that.
You're also going to write offdirect expenses.
So if you had to pay to repaintthat office to make it suitable
(09:24):
, that's a direct expense tothat room.
That's going to be 100%deductible.
Same thing if you had toreplace the flooring or maybe
the window treatments thosedirect expenses that affect the
home office directly.
Those are 100% deductible.
Now what about your actualmortgage payment, because that's
(09:45):
probably your biggest expense?
Well, we don't write offmortgage payments because those
are loans, but we can write offdepreciation.
This is where it does become alittle bit tricky.
Your house is going to bedepreciated over 27 and a half
years, so you're going to takethe original purchase price of
(10:08):
your home plus any significantmoney that you've put into your
house through like remodels oradd-ons or things like that, and
you're going to add thattogether to come up with your
basis, and then you're going todivide that by 27 and a half and
multiply it by 6%.
So easy, easy right Like I haveto get the back of the napkin
(10:34):
in the calculator, but that'sgoing to be your depreciation
expense on your home office.
And this is why I kind of steerpeople towards the simplified
method a lot of times, becausethis is a lot of math and, in
addition, it's a lot of recordkeeping too right, because we
would need to be able to provethese expenses if we got audited
(10:55):
.
And finally, there's one otherdownside of the regular method,
and that has to do with when yousell your home.
See, normally when you sellyour home, as long as you don't
make more than $250,000 ofprofit per spouse, you don't
need to worry about taxes.
But if you use the regularmethod and you start taking tax
(11:18):
deductions for the depreciationon your home, you have to
recapture that depreciation whenyou sell, basically pay those
tax deductions back, and thatcan be a real pain in the neck
when it comes time to sell yourhouse.
So if you are going to do thestandard regular method, you
(11:39):
probably want to talk to youraccountant and make sure you
have a plan for handling that.
And if you're thinking, well, Ilike the standard method but I
don't want to have to worryabout depreciation recapture, so
I just won't take thedepreciation portion.
Unfortunately, that doesn't work.
The standard is you mustaccount for depreciation that is
(12:01):
allowed or allowable, whichmeans even if you didn't take it
, the IRS still requires you topay it back.
So have a conversation withyour tax professional before you
go down that road.
All right, what if you're onlyusing the office, say part-time?
(12:22):
You're only using the office,say part-time.
Well, that definition ofregular is a little ambiguous.
You don't need to spend 40hours in your home office in
order to have it as a deduction.
You know, even just a few hoursa week, as long as it's on a
somewhat regular basis a week,as long as it's on a somewhat
(12:43):
regular basis, would qualify forthat deduction.
It still has to be exclusiveright, so we can't be using it
to put up our relatives duringthe holidays or have like a man
cave when we're not working.
But we don't have to feel likewe need to be in there for hours
and hours on end in order toqualify.
Speaker 1 (13:04):
What you could do is, in your man cave, allocate a
specific area that you useregularly and exclusively for
business, as long as the mancave activities are not
occurring in that area.
So it could be a portion ofthat room in your man cave,
right.
Speaker 2 (13:30):
Yes, it would be like an office cave in the man cave
in your house.
You have, like inception leveldeductions going on here.
But no, you're absolutely right, daniel.
Of course, whatever you know,you wouldn't write off the
entire man cave, just the cornerthat you've sectioned off for
sure, and this is nice.
Maybe you have a family memberwho has a side hustle and they
(13:50):
want to take an office deductiontoo.
Have them carve out a spot,even if they only use it
part-time, as long as it'sexclusive for business, they can
get that deduction off of theirbusiness taxes as well.
All right, why does this reallymatter?
Well, I mean, one, we're savingmoney, right, obviously.
(14:12):
But two, we're also unlockingsome additional tax deductions.
One of the big ones has to dowith auto mileage, and we're
very familiar with taking ourmileage as a tax break.
But we want to be careful thatwe're not including what's known
as commuting miles.
(14:32):
So if you drive your car fromyour home to your rented space
that you do business out of,that commute is non-deductible.
Once you leave your rentedspace and maybe go to a work
site or go do some estimates,drop off some proposals, that
would be business mileage.
(14:53):
But the drive from your home toyour primary place of business
is a commute and non-deductible.
Well, what if your primaryplace of business is also your
home?
Now, whenever you jump in thecar, you've just added extra
mileage that can be written off.
So, for example, the differencebetween having a rented space 10
(15:17):
miles away from your house andhaving your home as your primary
admin place of business anextra 10 miles a day times five
days a week, times 50 weeks ayear, if we were to use, say,
the 70 cents per mile, we wouldbe looking at about an
additional $1,750 of tax savingsper year.
(15:41):
So just something to kind ofthink about.
You know, on top of the regularhome office deduction, we could
be unlocking some extra thingstoo.
There's even opportunities toput artwork and decorations in
your home office.
I believe you're allowed up to$300 for artwork, so maybe it's
(16:07):
a good opportunity to get thatum, you know copy of the Picasso
that you've always wanted, thatthat inspires you to to paint.
Speaker 1 (16:11):
So you can go.
Speaker 2 (16:13):
You can go purchase some artwork and put it in your
home office and deduct that upyeah, maximum up to 300 yeah, I
mean it should probably be likeoffice appropriate artwork, but
you know, dogs playing poker.
If that inspires you to to,that's fine.
But yeah, um, you know samething with like window
(16:34):
treatments.
Um, good chance to to repaintthe room or replace the flooring
, replace the lighting and getthe deduction for that.
All right, we mentioned S-Corps, so S-Corps and C-Corps are a
little bit different.
We're not able to use thesimplified method with the
(16:55):
S-Corp and we're actually notable to directly deduct things
with the S-Corp.
We have to do a little bit of aroundabout method and it's not
a problem.
That's why we have accountableplans.
So an accountable plan ifyou've been listening, you know
this already it's a fancyreimbursement plan that meets
IRS requirements.
(17:15):
Reimbursement plan that meetsIRS requirements, and so the
company, the corporation, isgoing to reimburse you for the
use of your home.
You can't use the $5 per squarefoot simplified method.
You're going to have toactually go and do the standard
method.
But once you figure out whatthose amounts are, you're just
going to have the corporationwrite you a check and reimburse
(17:37):
you.
Now, that payment is a rentexpense to the corporation.
That's how you get your taxdeduction and the money you
receive as the employee who'sbeing reimbursed is not taxable
to you.
So it's a nice way to get sometax-free distributions out of
(17:58):
your company while still gettingthe office deduction.
Additionally, you might haveequipment, supplies, office
expense that you want to put onyour accountable plan.
You may be storing inventorymaterials, things like that.
Make sure that you're gettingreimbursed for that as well.
(18:20):
And if you do drive yourpersonal vehicle for the
business, track your miles, payfor the expenses yourself, track
your miles and have the companyreimburse you.
It's up to $0.70 per mile in2025.
That's the highest it's everbeen.
It can usually be prettylucrative as long as you have a
(18:41):
vehicle that's somewhat fuelefficient and not too terribly
expensive to operate.
So the home office deduction asa financial strategy.
It reduces your taxable income.
It boosts the amount of therefund that you're going to get.
It's a great opportunity tohave the IRS help you pay for
(19:03):
something that you're paying foralready.
It does not require yougenerally to spend new money
we're going after misseddeductions here and it can also
help unlock savings for familymembers who have their own side
hustles or part-timeentrepreneurs.
I think it's a greatopportunity.
(19:24):
It's something that often getsmissed, and so if you can carve
out a spot of your home, it isdefinitely worth trying to do
that.
Trying to do that If you haveany questions about the home
office deduction or making surethat you dot your I's and do it
correctly, you can certainly askthose in our Facebook group,
(19:47):
grow your Painting Business.
We'd love to see your commentsthere and answer any questions
that you have.
And until next time, weappreciate you listening and
we'll have some more tax savingstrategies on the next episode.
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