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Leveraging the Home Office Deduction for Optometric Practice Owners

June 24, 2024

As an optometrist running your own clinic, you're likely familiar with the many demands of your profession. Amidst the clinical work and patient care, you may not have considered the potential tax benefits that come with your home office. The home office deduction can be a significant advantage for optometrists who operate their own clinics from home. In this article, we'll explore the unique requirements and deductions associated with the home office deduction, tailored specifically to optometrists. 

Requirements for a Home Office Deduction 

To claim the home office deduction, you must meet certain requirements set by the IRS. Here's what you need to know: 

  1. Principal Place of Business: Your home office can qualify as the principal place of business if a substantial amount of administrative and/or management activities are performed there. This means that if you primarily use your home office for tasks like managing your business, review patient records, employee hours, review resumes for hiring or other necessary business functions then it can meet this criterion. 
  2. Exclusive Business Use: The office or area you're claiming as your home office must be used exclusively for business purposes. It can include storage of inventory, supplies or equipment related to your business. Any personal use of this space may disqualify you from claiming the deduction. 

Calculating Your Deduction 

Once you've met the requirements, it's time to calculate your home office deduction. There are two methods to determine the business percentage: 

  1. Square Footage Method: Divide the square footage of your home office by the total square footage of your entire home. 
  2. Rooms Method: Divide the number of rooms used exclusively for your business by the total number of rooms in your home. Generally, Williams Group includes kitchens, living rooms and dining rooms and do not include bathrooms. 

Expenses for Deduction 

Understanding which expenses are deductible is important to maximizing your tax benefits: 

  1. Direct Expenses: Expenses directly related to the office area, such as repairs or painting in the office, are fully deductible. These costs are tied directly to your business space and can be claimed in full. 
  2. Indirect Expenses: Indirect expenses are those related to the entire home, such as insurance, utilities, and general repairs like furnace maintenance. These costs are based on the business use percentage you calculated earlier. For example, if your home office accounts for 10% of your home's total square footage, you can deduct 10% of these indirect expenses. 
  3. Unrelated Expenses: Expenses not connected to your home office, like lawn care or repairs in other areas of your home, are not deductible under the home office deduction. 

A Note on Depreciation  

One important consideration is the depreciation of your home if you've been claiming the home office deduction. If you eventually sell your residence after taking depreciation for the home office, the depreciation will reduce the cost basis of the residence when calculating the excluded gain of your primary residence. Be sure to consult with a tax professional to fully understand the implications of depreciation on your tax situation. 

The home office deduction can be a valuable tax benefit for self-employed individuals. By meeting the necessary requirements and understanding how to calculate your deductions, you can potentially reduce your tax liability. However, tax laws can be complex, so it's always a good idea to consult with a tax professional or accountant to ensure you're making the most of this deduction while staying compliant with IRS regulations. 

Maximize your deductions by schedule a call with Brad Rourke, CPA, ABV or learn more about optometry-specific accounting and tax on our website.  

Archie Keebler

Tax Manager

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