13 Jan Home Office Deduction
Tax – Home Office Deduction
How to calculate the home office deduction:
1. The regular (old) method: Taxpayers using the regular method (required for tax years 2012 and prior), instead of the optional method, must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities. Then, you would multiply that percentage by the total home expenses (above) to get a yearly amount, or a monthly amount to reimburse yourself for the business use of your home from a corporation.
2. The simpler (new) IRS method: Allows for a $5/home office square foot per year. Example, 196 square feet x $5 = $980/year business expense. Divide that by 12 months and pay yourself $81.66/month as a reimbursement expense paid from the corporation to you personally each month and classified accordingly as an expense. Or, you can easily take the expense yearly as a sole proprietor entity on your Schedule C (1040). This simplified method has a maximum allowable amount set by the IRS of 300 square feet, or $1,500 deduction per year.
You can use the better of the old/regular method or the new simplified method. However, most taxpayers seem to use the simplified method because it is quicker to calculate and is consistent, whereas actual home expenses change often.
Here is an IRS link that explains both methods in detail, and the requirements to claim the home office deduction: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction
Feel free to contact Unbehagen Advisors with questions. We’re your small business tax experts!
This information is current as of 1/13/2015. Please contact Unbehagen Advisors for any changes to these rules, or check www.irs.gov for changes.