For many home-based business owners, the garage can be more than just a place to park your car or store holiday decor. If you areusing your garage for business purposes—whether it’s as an office, workshop, or for inventory storage—it can be included as part of your business use of home deduction. This tax-saving opportunity allows you to deduct a portion of your home expenses related to the business use of your garage.
Here’s how to make your garage work for you and lower your taxable income in the process.
Qualifying Your Garage for the Deduction
IRS Requirements for Deducting the Business Use of Your Garage:
- Regular and Exclusive Use:
- If the garage is used as an office, workshop, or for similar purposes, it must meet the regular and exclusive use test to qualify for the home office deduction. This means the space should be used consistently and solely for business purposes.
- Exception for Inventory Storage: The exclusive use requirement is waived if you are storing inventory for your business. However, the storage area must still be used regularly for your business, and your business must meet the IRS definition of a trade or business that involves the sale of products.
- Principal Place of Business:
- The garage can qualify if it is an integral part of your business activities, such as being a workspace, a storage facility for inventory, or a client meeting area.
- You must demonstrate that the garage is necessary for your business operations, not just a convenience.
You must demonstrate that the garage is necessary for your business operations, not just a convenience.
Examples of Qualifying Uses:
- Inventory Storage: Shelving or bins to store products you sell online.
- Workshop: Space for crafting, manufacturing, or repairing items for your business.
- Office Area: A dedicated desk or workstation in the garage.
How to Calculate the Deduction
The IRS allows you to deduct a percentage of your home expenses based on the portion of your home used for business. To include your garage:
- Measure Your Garage:
Determine the square footage of your garage. - Calculate the Total Square Footage of Your Home:
Add up the square footage of your entire home, including the garage. - Find the Business Use Percentage:
Divide the square footage of your garage by the total square footage of your home.
Example:
- Garage Size: 400 sq. ft.
- House Size (exc. garage): 1,600 sq. ft.
- Total Home Size for deduction: 2,000 sq. ft.
- Business Use Percentage: 400 ÷ 2,000 = 20%
This means you can deduct 20% of eligible home expenses.
Eligible Expenses You Can Deduct
Once you’ve calculated the business use percentage, you can apply it to the following expenses:
- Rent or Mortgage Interest: Deduct the applicable portion of your monthly payments.
- Utilities: Electricity, heating, water, and internet used in your garage.
- Property Taxes: A percentage based on the garage’s use.
- Insurance: Homeowner’s insurance or any additional policies for business use.
- Repairs and Maintenance: Costs specific to the garage, such as fixing a garage door or adding lighting.
Example:
- Annual Home Expenses: $24,000 (rent, utilities, taxes, etc.)
- Business Use Percentage: 20%
- Deduction: $24,000 x 20% = $4,800
Special Considerations for Garages
1. Dual-Purpose Garages
If your garage is used for both business and personal purposes (e.g., storing inventory and parking your car), you’ll need to allocate the space used for business.
Example:
- Garage Size: 400 sq. ft.
- Business Area: 200 sq. ft. (50% of the garage)
- Total Home Size including garage: 2,000 sq. ft.
- Business Use Percentage: 200 ÷ 2,000 = 10%
2. Improvements for Business Use
If you make upgrades to your garage specifically for your business—like installing shelves for inventory or adding insulation for a workshop—those costs may be fully deductible.
3. Documentation is Key
To claim the deduction, you’ll need to keep detailed records, including:
- Photos of your garage setup
- Floor plans showing the business area
- Receipts for expenses and improvements
How to Maximize the Benefit
- Combine Deductions: Use the garage deduction alongside other business write-offs, like mileage or equipment purchases, to further reduce your tax liability.
- Work with a Tax Professional: The rules around home office deductions can be complex. A professional can ensure your calculations are correct and help you avoid audits.
Conclusion
Using your garage for business purposes isn’t just practical—it’s profitable. By including your garage in your home office deduction, you can significantly reduce your taxable income and reinvest those savings into your business.
At Jeffrey Plante Bookkeeping and Tax Service, we specialize in helping home-based businesses maximize their deductions while staying compliant with tax laws. If you’re unsure how to claim the business use of your garage, contact us for expert guidance.
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