Tax Guide for Home-Based Business Owners in North Dallas

The North Dallas area has a large and growing population of home-based entrepreneurs. Consultants, freelancers, coaches, e-commerce sellers, real estate professionals, bookkeepers, and service providers of all kinds operate from their homes across Plano, Carrollton, Frisco, McKinney, Allen, and surrounding communities. Running a business from home has real advantages, and the tax code recognizes several of them through deductions not available to someone working a regular job.

The Home Office Deduction

The home office deduction allows you to deduct a portion of your home-related expenses as a business cost. To qualify, you must use a portion of your home regularly and exclusively for business. This means a dedicated room or clearly defined space used only for your business, not a kitchen table you also use for personal activities. The deduction is calculated as the percentage of your home's square footage used for business multiplied by qualifying home expenses including rent or mortgage interest, property taxes, utilities, homeowner's insurance, and repairs.

The Simplified Method vs. the Regular Method

There are two ways to calculate the home office deduction. The simplified method allows a flat deduction of $5 per square foot of dedicated office space, up to 300 square feet for a maximum deduction of $1,500. The regular method requires calculating the actual percentage of home costs allocated to the office, which often produces a larger deduction. A CPA can help you determine which method is more advantageous for your specific situation.

Internet and Phone

Your business internet and the business-use portion of your phone are deductible. If you use your phone 70 percent for business, 70 percent of the cost is a business deduction. If you maintain a separate business phone line, the full cost is deductible.

Home Office and the Sale of Your Home

One consideration for homeowners who use the regular method home office deduction is that the deduction may reduce your home's cost basis, which has implications if you sell your home. The portion of the home allocated to business use over the years may be subject to depreciation recapture. This is not a reason to avoid the deduction, but it is worth planning around with a CPA who understands the interaction between home office and home sale tax rules.