The Home Office Deduction

Every small business owner knows that running a successful small business is difficult. We want to remind our small business clients that claiming a home office deduction can help — and there are a couple of ways to do that.

Do I Qualify for the Deduction?

There are several ways to qualify for the home office deduction. You must use a part of your home on a regular basis for any of the following reasons:

  • As your main place of business.
  • As a place of business where you meet patients, clients or customers. You must meet these people in the normal course of business.
  • If it is a separate structure that is not attached to your home, you must use this structure in connection with your business
  • A place where you store inventory or samples. This place must be the sole, fixed location of your business.
  • Under certain circumstances, the structure where you provide day care services.

What Can I Deduct?

Deductible expenses for business use of a home include real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, repairs, and maintenance.

Certain expenses are limited to the net income of the business, however. These allocable expenses include such things as utilities, insurance and depreciation. While allocable expenses can’t create a business loss, they can be carried forward to the next year.

Allocable expenses that are carried forward are still subject to the same limitation rules.

There are Two Deduction Methods

You have two choices for claiming the home office deduction. The first is known as the Regular method. This requires dividing the expenses already noted between personal and business use. Self-employed taxpayers should file Form 1040, Schedule C, and calculate the deduction on Form 8829.

A simpler way to calculate the deduction is called the Simplified method. This has a set rate of $5 per square foot for the areas used by the business in the home. This can be used for up to 300 square feet of business space.

Certain business owners should be aware of special rules:

  • Daycare providers complete a special worksheet, which is found in Publication 587.
  • Self-employed individuals use Form 1040, Schedule C, Line 30 to claim deduction.
  • Farmers claim the home office deduction on Schedule F, Line 32.

Information for this article was sourced from https://www.drakesoftware.com