Being a coach is pretty awesome — not only can you spend your days helping other people, but you can even work from the comfort of your own home!

But spending time in your home to run your coaching business isn’t free. Sure, it’s cheaper than renting a swanky corporate office. But you’ll still be using electricity and eating up a portion of your home that you can’t use for leisure.

Because there’s a cost to running a business, you’re allowed to deduct direct expenses related to your home office costs from your taxable income.

Below, you’ll learn how these home office expenses work — read until the end to grab a free home office deduction worksheet for coaches! 

What are home office deductions, anyway?

As you probably know, everyone needs to pay taxes on their income. This applies to self-employed coaches, too! 

However, taxes work a little differently when you’re self-employed compared to being employed by another business. 

First, you need to pay a self-employment tax in addition to the usual income tax. But while that seems overwhelming at first, you benefit from tax breaks, tax credits, and deductions that regularly employed people don’t.

For example, you can apply a variety of tax deductions, including deductible business expenses from your gross income, to reduce your tax bill. And because you only pay taxes on your income, using deductions can put a significant dent in what you’ll owe the IRS!

So if you have an office for your business and need to pay rent and utilities, those count as deductible expenses. But what about self-employed coaches who work from home? One of the benefits of starting a coaching business is the low cost of entry, but does that mean you’ll pay more taxes?

Here’s where home office expenses come in for coaches. Let’s say you work from the comfort of your home and coach your clients using a home office.

Home office deductions are tax breaks that take into account that part of your home gets used to run your business. You spend money to live in your home, but if part of your home helps you run your business, it is a direct expense and can count towards a qualified business income deduction!

What are the IRS rules for home office deduction for coaches?

Not all coaches will be eligible to use home office deductions to save on their taxes.

First, you need to meet one of two criteria:

• You exclusively and regularly use a portion of your home (house, apartment, unattached garage, condo, boat, mobile home, or similar structure) to conduct business for your coaching services or;
• Your home office is the principal location of your coaching business, or you regularly meet with your coaching clients at your home.

So what does “exclusive” mean? Let’s say you have a three-bedroom home, and you keep one of the rooms as an office for business purposes. You regularly work in this room to speak to coaching clients, work on marketing content, or sift through admin tasks. If you claim the entire room on your income tax deductions, you cannot also use this same room to host a book club.

And what about “principal place of business”? If you perform business elsewhere — for instance, you prospect for coaching clients by visiting executives in their offices — your home must remain the place where your business “lives.”

In practice, this could mean you have a home office but still work with clients in their homes. That’s because your home office doesn’t have to be your principal place of work. 

As long as the use of your home office is for business and tasks, such as administrative catchup, you can claim it as your main place of business.

But you only have to meet one requirement to be eligible: exclusivity or principal place of business. 

You can’t use home office tax deductions if you don’t own your business. For instance, coaches or consultants who have an employer and work from home cannot deduct home office expenses on their income taxes — unless they also have a business.

How much of your home office expenses can you deduct?

You’ll base your home office expenses on how much of your home you use to run your coaching business. This is usually calculated as a square footage percentage of your home.

For example, let’s say you have a 12×12 room with about 144 square feet where you’ve installed a home office. If the area of your home is 1,000 square feet, your office makes up 14.4% of your home. 

But what if you share an office with your partner or spouse who works from home for another business? In this case, you can’t claim the square footage of the entire room. You could split the space in half and claim your half as your home office.

The same rule applies if you use the office for something other than business purposes for part of the day. If you only use the office for business during 50% of available hours, you would further reduce the percentage you can write off.

Let’s look at a few scenarios if you have a 1000 square feet home with a 144 square foot office available (14.4% of the home):

• Dedicated home office: No one else shares the office with you, and you only use it for your coaching business. You keep the full 14.4% deduction.
• Home office shared with a spouse: You take up 75% of the office while your spouse uses 25%. In this case, you’d multiply 14.4% by 75% and get 10.8%.
• Home office used as space for homework by children: You use the entire office as a place of business, but only 50% of the time, while your children use the office for the rest of the time. If you multiply 14.4% by 50%, you get 7.2%. 

So what does this percentage mean? It means 14.4% of your home office expenses are a deductible amount from your coaching income, which will in turn reduce your tax bill. 

Your home expenses can include:

• Insurance
• Utilities
• Rent (if you don’t own your home)
• Mortgage interest
• Home depreciation
• Home repairs

So if you spent $15,000 on all of the above during the year, you could deduct a prorated amount depending on the above calculation. For 14.4%, you’d deduct $2,160.

For example, if you had previously calculated a net income of $50,000 after your other business expenses, your new taxable income would be $47,840. Kashing!

The two methods coaches can use to calculate home office deductions

Did you know you have more than one way to calculate your home office deductions? The perfect method will depend on your circumstances and how much you’re spending on your home.

The regular method involves tracking each expense you make in your home. When it’s time to file your tax return, you’ll add up your total expenses and calculate the deduction you’re entitled to. 

If you have a bookkeeper, this process can be easy. 

But you can also use the simplified method. To calculate your home office deduction using the simplified option, find the total number of square footage you use for your business and multiply that by $5.

So, if you use 150 square feet for your office, you can deduct $750 from your coaching income. 

You’re allowed a maximum deduction of 300 square feet or $1,500 with the simplified method. 

Keep in mind there is a deduction limit

Using the regular method to calculate your free home office deduction? While deducting the indirect expenses for the use of your home as your primary place of business, you should keep in mind there is a limit to the amount you can deduct.

You can include expenses such as excess mortgage interest, insurance, repairs, maintenance, and real estate taxes when determining your allowable deduction.

You can use your gross income to calculate the deduction limit, as your expenses can’t exceed your income. You can also carry over home offices deductions if you didn’t use the full tax deduction limit in the prior year. If you want to calculate your deduction limit, use the IRS guidelines found here.

The deduction limit for your home office is different from other expenses, which you include elsewhere on your tax return.

Why coaches should use a home office deduction worksheet

Have you already lost track of what expenses you need to account for when calculating your home office deduction?

If that’s the case, consider using a simplified home office deduction form for coaches! With this type of worksheet, you can enter your expenses and let the built-in formulas figure out the rest for you. 

If you’re wondering how to calculate your home office deduction, using a worksheet will help you with keeping track of your spending on the use of your home so you can deduct expenses all from a single place.

This means you’ll be able to deduct more than you’d be able to with the simplified method (unless you have little to no expenses). 

We’ve already prepared a home office deduction form specifically for you! Access a copy of the form here.

How to fill in our deduction form

The free Paperbell home office deduction form is easy to use. First, make sure not to edit the blue cells. Otherwise, you may break the formulas and have to start from scratch!

Next, you’ll need to find the total area of your home and the area of your home office. Enter the information in the appropriate yellow cells.

If your home office only gets used for your coaching business, you can skip the next cell. However, if you use it for another purpose, specify the percentage of time you use it specifically for your coaching business. 

Once you’ve entered these values, you’ll have the percentage of your home expenses you can claim as a tax deduction!

Next, tally up your expenses in every category. As you change the amounts you’ve spent, you’ll automatically see your total expenses and deduction amount change. 

You’ll find your eligible deduction in the blue cell highlighted by a magenta border. And you’re done!

How to simplify your entire coaching business 

Yes, we know — taxes are complicated and remembering which indirect expenses you can include on your tax return can be a nightmare. That’s why you’re a coach and not a CPA! 

So use our ready-prepared home office deduction worksheet to simplify your life and focus on what you’re best at.

If you want to simplify the inside of your business to match its beautiful outside, there’s no better option than Paperbell. Designed for coaches and consultants, Paperbell replaces invoicing software, scheduling tools, landing page builders, and so much more in one beautiful tool.

Create your free account to see how easy it can be!