Keep Track Of Home Office Expenses

Small Business Owners Could Benefit From Home Office Deductions

The Small Business Administration reports that as of 2015 there were 30.2 million small businesses in the U.S. About 50 percent of those businesses are home-based businesses and most operate as sole proprietorships.

A home-based business usually requires some type of office space or warehouse/storage space.

If you are a small business owner, you may qualify for a home office deduction that will help you save money on your taxes and, as a result, benefit your bottom line. You can take this deduction if you use a portion of your home exclusively, and on a regular basis, for any of the following:

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.

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. These are known as allocable expenses. They include things such as utilities, insurance, and depreciation. While allocable expenses cannot create a business loss, they can be carried forward to the next year. If you carry them forward, the expenses are subject to the same limitation rules.

There are two options for figuring and claiming the home office deduction:

Regular Method

This method requires dividing the above expenses of operating the home between personal and business use. For self-employed taxpayers, this deduction is computed on Form 8829 and filed on Form 1040, Schedule C.

Simplified Method

The simplified method reduces the paperwork and recordkeeping for small businesses. The simplified method has a set rate of $5 a square foot for business use of the home. The maximum deduction allowed is based on up to 300 square feet.

There are special rules for certain business owners including daycare providers (see Publication 587), self-employed individuals (use Line 30, Form 1040, Schedule C to claim deduction), and farmers (use Line 32, Schedule F to claim deduction).

If you work from home or operate a home-based business, contact your tax professional if you have questions about home office deductions.