IRS: Home Office Deduction Often Overlooked by Small Business Owner + Home Deductions

IRS: Home Office Deduction Often Overlooked by Small Business Owner + Home Deductions

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Michael Sullivan Fresh Start Tax Expert

 

IRS: Home Office Deduction Often Overlooked by Small Business Owners

The Internal Revenue Service today reminded small business owners who work from a home office that there are two options for claiming the Home Office Deduction.

The Home Office Deduction is often overlooked by small business owners.

As part of National Small Business Week (April 30-May 6), the IRS is highlighting a series of tips and resources available for small business owners.

The Regular Method

The first option for calculating the Home Office Deduction is the Regular Method.

This method requires computing the business use of the home by dividing the expenses of operating the home between personal and business use.

Direct business expenses are fully deductible and the percentage of the home floor space used for business is assignable to indirect total expenses. Self-employed taxpayers file Form 1040, Schedule C , Profit or Loss From Business (Sole Proprietorship), and compute this deduction on Form 8829, Expenses for Business Use of Your Home.

The Simplified Method

The second option, the Simplified Method, reduces the paperwork and recordkeeping burden for small businesses.

The simplified method has a prescribed rate of $5 a square foot for business use of the home.

There is a maximum allowable deduction available based on up to 300 square feet.

Choosing this option requires taxpayers to complete a short worksheet in the tax instructions and entering the result on the tax return.

There is a special calculation for daycare providers. Self-employed individuals claim the home office deduction on Form 1040, Schedule C , Line 30; farmers claim it on Schedule F, Line 32 and eligible employees claim it on Schedule A, Line 21.

Regardless of the method used to compute the deduction, business expenses in excess of the gross income limitation are not deductible.

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

In general, expenses for the parts of the home not used for business are not deductible.

Deductions for business storage are deductible when the dwelling unit is the sole fixed location of the business or for regular use of a residence for the provision of daycare services; exclusive used in most cases.

About Michael Sullivan

Michael Sullivan is Former Award Winning IRS Agent and Teaching Instructor with the Internal Revenue Service. Mr. Sullivan worked in the local, district and regional offices of the IRS. Mr. Sullivan has been in private practice since 1982 and is a tax expert in the field of Federal and State Tax Resolution. Connect with Michael Sullivan on Google+

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