Entrepreneurs, telecommuters and service people, to name a few, can all claim deductions for the business use of their home.
Having an office in your home allows you to deduct items that are not normally deductible, such as depreciation, utilities and insurance. Part of your mortgage interest and taxes also will figure into the home office deduction.
Whatever business you're in, to claim a deduction your office must be regularly and exclusively used for business. Generally, that means a separate room, although under certain conditions a portion of a larger room may be used as an office.
Your home office must also be your principal place of business, meaning that it is used for administrative or management functions or it is a place to meet customers, patients or clients. If you are an employee, the office must be used for your employer's convenience, not your own.
If you conduct the bulk of your business outside of the home, you can still claim a deduction if you use the home office for fielding calls and performing administrative functions. Generally, the room or area in the home must be used solely for business. To calculate the deduction, first determine the square footage of the business area of your home versus the total area; the result is the “business percentage.”
Home office expenses are generally divided into two categories: direct and indirect. Direct expenses benefit only the office area of the home, such as painting. Indirect expenses, like mortgage, insurance and taxes, benefit the entire home. Generally, you can deduct the business percentage of the indirect expenses and 100 percent of the direct expenses. The total home office deduction cannot be more than the net income from the business for the year; excess expenses are carried over to the next year.
Depreciation is an allocation of the cost of your home over time. You will need to know the adjusted basis and the fair market value of the home (not including land) at the time you began using it for business. The smaller of these two figures is then multiplied by the business percentage to get the business use. The business use basis of the building is then multiplied by a depreciation percentage.
The home office deduction is claimed on Schedule C if you are self-employed or Schedule A if it is part of your employee business expenses. Although the calculations involved in figuring deductions for your home business can give you a headache, the opportunity to start the workday in your pajamas probably more than compensates for it.
For more information, call an H&R Block tax professional at (760) 433-1040.
Having an office in your home allows you to deduct items that are not normally deductible, such as depreciation, utilities and insurance. Part of your mortgage interest and taxes also will figure into the home office deduction.
Whatever business you're in, to claim a deduction your office must be regularly and exclusively used for business. Generally, that means a separate room, although under certain conditions a portion of a larger room may be used as an office.
Your home office must also be your principal place of business, meaning that it is used for administrative or management functions or it is a place to meet customers, patients or clients. If you are an employee, the office must be used for your employer's convenience, not your own.
If you conduct the bulk of your business outside of the home, you can still claim a deduction if you use the home office for fielding calls and performing administrative functions. Generally, the room or area in the home must be used solely for business. To calculate the deduction, first determine the square footage of the business area of your home versus the total area; the result is the “business percentage.”
Home office expenses are generally divided into two categories: direct and indirect. Direct expenses benefit only the office area of the home, such as painting. Indirect expenses, like mortgage, insurance and taxes, benefit the entire home. Generally, you can deduct the business percentage of the indirect expenses and 100 percent of the direct expenses. The total home office deduction cannot be more than the net income from the business for the year; excess expenses are carried over to the next year.
Depreciation is an allocation of the cost of your home over time. You will need to know the adjusted basis and the fair market value of the home (not including land) at the time you began using it for business. The smaller of these two figures is then multiplied by the business percentage to get the business use. The business use basis of the building is then multiplied by a depreciation percentage.
The home office deduction is claimed on Schedule C if you are self-employed or Schedule A if it is part of your employee business expenses. Although the calculations involved in figuring deductions for your home business can give you a headache, the opportunity to start the workday in your pajamas probably more than compensates for it.
For more information, call an H&R Block tax professional at (760) 433-1040.