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Wednesday, May 2, 2018

Home Office Deduction For Self-Employed


Self Employed taxpayers file Schedule C (Form 1040) to report their business income and expenses.

The home office deduction, if allowed, is taken on Line 30 of Schedule C.

The IRS allows taxpayers two options for taking the Home Office Deduction, the Simplified Method or the Regular Method, whether they own or rent the home.

Under the Simplified Method, the taxpayer is allowed a home office deduction of $5 per square foot up to a maximum of 300 square feet in lieu of determining actual expenses. Actual expenses are not considered or taken into account. Thus, the total potential deduction is $1,500.00.

If the taxpayer uses the Simplified Method for the home office deduction, they do not File Form 8829 Expenses For Business Use of Your Home.

Under the Regular Method, the taxpayer take into account various actual home office expenses and then takes the business use percentage of the home office to calculate the potential home office deduction. Thus, more record-keeping is required to track the expenses.

If the taxpayer uses the Regular Method, they must file Form 8829 Expenses For Business Use of Your Home, to calculate the allowable home office deduction, which then transfers to Schedule C, Line 30.

Typical home office expenses include: mortgage interest, real estate taxes, homeowners insurance, utilities, maintenance and repairs, and depreciation.

Under either method you need to figure the percentage of your home devoted to your business activities. Therefore you will need both the total square footage of the entire home and the square footage devoted to the business activity.

Regardless of the method chosen, there are two basic requirements for your home to qualify as a deduction:

1-Regular AND Exclusive Use-you must regularly use part of your home exclusively for conducting business, and

2-Principal Place of Business-your home must be the principal place where you conduce business.

IRS Publication 587 from the IRS provides information for Business Use of Your Home.

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
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