IRS REMINDS ENTREPRENEURS OF HOME OFFICE DEDUCTION
The IRS has recently issued a release to remind small business owners of the possibility to claim a home office deduction. The deduction allows entrepreneurs that operate a business out of their homes to claim a tax deduction and lower their liability.
Two options exist for computing your deduction:
The regular method requires computing what portion of the home is used exclusively for business purposes. Direct business expenses while the portion of home floor space used for business is considered an indirect expense and therefore a partial deduction. Self-employed taxpayers compute the deduction Form 8829, Expense for Business Use of Your Home and report the summary on Form 1040, Schedule C.
The simplified method minimizes the record keeping requirement for the business owner and allows for a prescribed rate of $5 per square foot for the business use of the home. The maximum deduction allows for 300 square feet. A separate worksheet is used to calculate the same and is generally reported on Form 1040, Schedule C as well.
Deductible expenses for business use include the business portion of real estate tax, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. Importantly, expenses for parts of the home not exclusively used for business are generally not deductible.