In recent years, the tax code has made it possible for many small business owners to deduct a large portion of their office equipment purchases in one year. These deductions may be used for items like desks, chairs and computers. These expenses are generally categorized as business equipment and depreciated over the life of the item, which can be a very significant tax savings for most small businesses.
Home Office Expenses Can Be Claimable as Tax Deductions
There are several different categories of home-related expenses that can be claimed as a tax write off, including rent, utilities, insurance and mortgage interest. You must meet certain guidelines to be eligible for this deduction, so make sure you know the rules.
Office Expenses Are Also Deductible as Business Expenses
Any kind of self-employment is considered to be a business for tax purposes. It doesn’t matter whether it’s a side hustle or your main source of income. To qualify for this tax break, you must show that you spend a fair amount of time working in your office. Having a dedicated area of your home where you work is a good way to show that you use the space regularly and exclusively for your business.
What Are Office Equipment?
Office equipment is any equipment or piece of furniture that you use for your business. It includes items like computer monitors, printers and fax machines.
The IRS defines office equipment as anything that is “ordinary and necessary” for your business to operate. This means that other people in your industry would use the same items as you do to operate their own businesses.
Some items that qualify for the home office deduction include furniture, computers, fax machines and cell phones as long as you use them for your business. Some other equipment that is not deductible in the home office include things like TVs, stereo systems and video game consoles.
You must have a regular and exclusive home office to claim the deduction for your home office, which means that you must not use this area of your home for personal purposes. This can mean that your home office is in a basement or a bedroom, but it must be dedicated to business purposes.
In addition, you must have an average floor area of 150 square feet or more to claim this deduction. For example, if you have a 2000-square-foot house and you have 200 square feet in your basement for your office, you would be able to claim 10% of your total home-related expenses as the home office deduction.
Bonus Depreciation for New or Used Personal Business Property – Up to 100%
The Tax Cuts and Jobs Act (TCJA) provided small businesses with a significant tax break by allowing businesses to deduct the entire cost of new or used business equipment, software and vehicles. This is called the Section 179 expensing provision.
If you purchased a piece of equipment that is eligible for this deduction, it must be placed into service during the current year and be used over 50% of the time in the course of your business. Then, you can deduct the full cost in a single year through 100% bonus depreciation or expanded Section 179 expensing.