It’s not uncommon for employed Americans to be going to work… in their own homes. According to a recent New York Times survey, 43 percent of employed Americans work remotely at least some of the time. That refers to the number of Americans who are working out of their homes or other remote locations, but still working for a larger business. There are also 38 million home-based businesses in the U.S. A “home-based business” is one where the primary office is in the owner’s home.
There are a lot of large, well-known corporations that began as home-based businesses — Apple, Hallmark, Purex, and others — and there are lots of reasons why a small business owner (even one who doesn’t aspire to be the next Apple CEO) might want to work from his or her home. One reason why starting a home-based business is appealing is because the overhead is far less than if you have to buy or lease outside space. Running an energy-efficient home office is one way to ensure that you are maximizing your profit by reducing energy bills.
Home Office Tax Deduction
Whether you’re self-employed or working in your home for an employer, you can benefit from the IRS home office tax deduction. Before you file, you might want to consult an accountant to explore the nuances of the tax law. Here are the basic questions to determine if your space could qualify for a home office tax deduction:
- Is your space an office? To qualify, you must be using your home “exclusively and regularly” as your place of business.
- Does the office need to be separate from the rest of the house? No. Any space that is “separately identifiable” as your workspace could qualify, and it does not need to be a separate room or include a wall or partition.
- Is your home a “principal place of business”? This does not mean that your home must be the only place of business. It needs to be a place where your administrative and management activities are conducted, and you don’t conduct those activities in any other business location. The IRS describes these activities as “billing customers, clients or patients; keeping books and records; ordering supplies; setting up appointments; forwarding orders or writing reports.”
“Space” can be easily measured and quantified, but what about other things, like home office energy expenses? You wouldn’t be able to measure how much energy is being used specifically in your home’s office space, as separate from the rest of your house or apartment, so this has to figure into your home office tax deduction a little differently. So, if you work from home, what is tax deductible?
There are two ways to file: (1) The Simplified Method, which would allow you to simply take $5 per square foot up to 300 feet, or $1,500 total; or (2) Actual Costs (Form 8829). If you choose Form 8829, you could deduct for:
- Mortgage interest
- Real estate taxes
- Home repairs and maintenance (with certain specifications)
- Homeowners’ insurance premiums
This is accomplished by multiplying each expense by the percent of your home that’s being used as home office space. In other words, if 10% of your home is office space and you pay $200 per month for gas and electricity, then you could deduct $20 per month, or $240 per year, for that, alone. Therefore, home office energy expenses are an important part of saving money, and an energy-efficient home office is one way to make that happen.
A home office deduction calculator is an online tool that can be helpful if you work from home. Want to know what is tax deductible? These sites can help you figure it out.
Here are some options for a home office deduction calculator:
Home Office Energy Savings Tips
The type of business you’re in will ultimately determine your home office energy expenses. If you’re working with computers and other electronic devices, there are ways to lower your energy consumption by making small changes to your day-to-day routine. Let’s take a look at lowering your home office energy expenses in three ways: technology, heating and cooling, and lighting and layout.
Reduce home office energy expenses by managing technology
- Use power strips. If you use computers with peripherals (printers, external hard drives, additional monitors, etc.), plug each of these items into a single power strip (also called a “surge protector”). This serves two purposes: First, these strips are designed to protect your equipment in the event of a power surge. Second, they make it convenient for you to power down all of your equipment with the flip of a single switch. This avoids wasting “phantom energy,” which is the energy that your equipment (or any appliances) continues to take from the source, even when the power is off. You can increase your home office energy savings by actually disconnecting your equipment from the power source when it’s not in use. Turning off the power strip does the same thing.
- Select energy-efficient equipment. Just like you might own an EnergyStar dishwasher or washing machine, you can also purchase EnergyStar-labeled office equipment. These items can save as much as 75% on energy use. And a laptop computer uses far less energy than a desktop, so before you purchase equipment, it can be helpful to research energy consumption.
- Use power-saving settings. Most computers and computer equipment, like monitors, are designed to use as little energy as possible. Still, you might need to set “sleep mode” or other power-saving features according to how your equipment is being used. The default on some machines is to go into sleep mode after 20 minutes of non-use, but you can change those settings according to your needs and preferences. A screen saver is not the same as an energy saver, and sometimes a screen saver can actually use more energy than not. Also, your sleep settings might not work if you have screen savers on, so make sure that you are configuring your specific equipment properly to maximize your home office energy savings.
Creating an energy-efficient home office through heating and cooling
- Heat or cool only the space you’re using during work time. If you have a home office, energy expenses can be reduced by space heating just that area if your workspace is one-third or less of your home. If you primarily work during the day and your family is out, there’s no reason to keep the temperature moderated in the entire house if you’re working in only one area. In summer, keep the thermostat a little higher, and in winter keep it a little lower in the areas where you’re not working. Even a 10% change — for example, lowering from 68 ℉ to 62 ℉ in the winter — in the home temperature could save about $100 per year.
- Use a space heater or fan to keep your workspace comfortable. A space heater is one way to have a more energy-efficient home office because you can control the temperature to be comfortable in the specific room or area in which you’re working. Likewise, using a fan in the summer can keep you cool without having to crank up the AC.
- Layer clothes to stay comfortable. Air conditioning and heat aren’t the only ways to keep yourself comfortable. One of the luxuries (for most) about working from home is that you could work in your pajamas if you wanted! Likewise, you can bundle in the winter with warm clothes or a snuggly blanket, and you can pare down your layers in the summer. Letting your wardrobe do the work, rather than your furnace or air conditioner, can save money on energy costs.
Home Office Layout Ideas
One way to have an energy-efficient home office is to use a combination of natural light and efficient electric lighting to create the atmosphere you need to be productive, while still benefiting from home office energy savings.
- Find natural light if it’s available. Not every office space will have the option for natural light, but if you can manage it, using natural light instead of electricity will help you save energy. Don’t turn on the lights in the room if you don’t need to! If your habit is to turn on the light every time you walk into the room, try putting a piece of tape over or sticky note by the switch to remind yourself that you might not need it. Especially if you’re working on a computer, the natural light combined with the screen display could be plenty. The one thing to be aware of is to position your computer screen or monitor so that the natural light doesn’t create glare.
- Replace incandescent light bulbs with LED lighting. This can be one of your most productive home office layout ideas because you can use fewer lamps or overhead lights, with more illumination. LED or CFL bulbs are more energy-efficient than incandescent bulbs. If you’re working in a small space, this can make a big difference because it can be a space-saver, but it can also save on energy costs.
- Configure your space to avoid “wire spaghetti.” As mentioned earlier, one way to have an energy-efficient home office is to connect your equipment to a power strip so that everything is properly powered down when you’re not working. The other benefit is that it cuts down on “wire spaghetti,” or a tangled mess of wires traveling throughout your space. Whether you work at a desk, on a couch or in a chair, you could have a single table or equipment stand that holds all of your peripherals or anything that needs to be plugged in. Keeping those items together frees up your space for you to have flexibility in how you use it.
Whether you’re presently working from home or you’re considering setting up a home-based business or home office for the first time, these factors could go a long way in reducing your home office energy expenses, which could in turn benefit your bottom line. Combining some energy-savvy practices with good home office layout ideas can help you to be comfortable, productive and save money. Do you have tips for good home-office practices? Share in the comments below!