Bookkeeping and tax services for contractors and trades in Long Beach and across Greater LA.

Call or Text: (562) 738-7344

How do I calculate the home office deduction?

There are two ways to calculate it, and you should run both to see which saves you more.

The simplified method is straightforward. Measure the square footage of your home office, multiply by $5, and that’s your deduction. The IRS caps it at 300 square feet, so the maximum you can claim is $1,500. No tracking of actual home expenses required. You just need to know the size of the space.

The regular method takes more work but usually produces a bigger number. First, calculate your business-use percentage by dividing your office square footage by your home’s total square footage. Then apply that percentage to your actual home expenses for the year. That includes rent or mortgage interest, property taxes, utilities, homeowner’s insurance, general repairs, and depreciation if you own the home.

Here’s a quick example. Say your office is 200 square feet in a 2,000 square foot home. That’s 10% business use. If your total qualifying home expenses for the year come to $30,000, your deduction is $3,000. The simplified method for that same space would only give you $1,000. In the Greater LA area where housing costs are high, the regular method almost always wins.

Before you calculate anything, make sure you qualify. The space has to be used regularly and exclusively for business. That spare bedroom where you handle estimates, scheduling, and invoicing works as long as it’s not doubling as a guest room. For contractors and trade business owners, a garage or shed dedicated to storing tools and equipment can also qualify, even if your paperwork happens somewhere else.

One thing to watch with the regular method is depreciation. If you own your home, the calculation includes depreciating the business portion of the structure. This is a real deduction that saves you money now, but it reduces your cost basis in the home and can affect your taxes when you sell. It’s generally still worth taking, but it’s worth factoring into your tax strategy especially if you plan to sell in the next few years.

Keep your home expense records organized throughout the year. Utility bills, insurance declarations, property tax statements, and mortgage interest statements all feed into the regular method calculation. If you’re pulling these together for the first time in March, you’ll spend hours hunting down documents. A Long Beach bookkeeper who works with trade businesses can keep this organized so the numbers are ready when you need them.

If you’re unsure which method to use, the general rule is this: the simplified method works fine for small spaces or if you just want the easiest path. The regular method is worth the extra effort when your dedicated space is large, your housing costs are high, or both. Run the numbers both ways at least once so you know what you’re leaving on the table.

Long Beach's CPA for Contractors and Trades

The Next Step:
A Quick Conversation

Tell us about your business and where you need help. We'll ask a few questions, let you know what we can do, and give you a quick quote.

More Questions

Should I offer payment plans to my customers?

You can, but understand you're essentially financing the job yourself. If your cash flow can handle delayed payments and you track receivables carefully, payment plans can help you win bigger projects. Without structure and follow-through, they create collection headaches.

Read answer

What forms do I need when I hire a new employee?

At minimum you need a W-4, Form I-9, and to report the new hire to California EDD within 20 days. There are a few other items to handle before that employee starts working.

Read answer

How much does a bookkeeper cost for a small business?

Most small businesses pay between $200 and $2,000 per month for bookkeeping, depending on transaction volume, number of accounts, and complexity. Trades and contractor businesses often land in the middle of that range.

Read answer

Do I file a Schedule C if I'm a sole proprietor?

Yes. If you're a sole proprietor, you report your business income and expenses on Schedule C, which gets filed alongside your personal Form 1040. It's how the IRS sees your business profit or loss.

Read answer

How do I pay quarterly taxes to the IRS?

Make estimated tax payments four times a year using IRS Direct Pay or EFTPS. The due dates are April 15, June 15, September 15, and January 15. Base each payment on your expected annual tax liability or your prior year's total tax.

Read answer

Do I need to track every trip or just business miles?

You only deduct business miles, but if your vehicle has any personal use, you need a log of total miles to prove the business percentage. The IRS wants date, destination, purpose, and mileage for every business trip.

Read answer

Long Beach CPA firm specializing in contractors, trades, and service businesses. Bookkeeping, tax preparation, IRS representation, and advisory services for businesses across the South Bay and Greater LA. Owned and operated by a CPA with over a decade of hands-on experience.

Social

© 2026 TradeBuilt Accounting Company