Tips for Claiming Home Office Deduction

The Internal Revenue Service today reminded people with home-based businesses filling out their 2015 federal income tax returns that they can choose a simplified method for claiming the deduction for business use of a home.

In tax year 2013, the most recent year for which figures are available, more than 3.4 million taxpayers claimed deductions totaling just over $9.6 billion for business use of a home, commonly referred to as the home office deduction.

Introduced in tax year 2013, the optional deduction is designed to reduce the paperwork and record keeping burden for small businesses. The optional deduction is capped at $1,500 per year, based on $5 a square foot for up to 300 square feet.

Normally, home-based businesses are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Instead, taxpayers choosing the simplified method need only complete a short worksheet in the tax instructions and enter the result on their tax return. Self-employed individuals claim the home office deduction on Schedule C, Line 30; farmers claim it on Schedule F, Line 32 and eligible employees claim it on Schedule A, Line 21.

Though homeowners using the simplified method cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible. Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the simplified method.

If you'd like to discuss home office deductions with an income tax professional, contact Neikirk, Mahoney and Smith today.

Are You Ready for Tax Season?

According to the Internal Revenue Service, nearly a third of Americans wait until the last minute to file their taxes. And once again  this year, with the April 15 deadline looming, millions of Americans still aren't ready to file their tax returns.

Business taxpayers are no different. The process for filing business taxes can always be counted on to add a little bit of a dark cloud to even the prettiest spring morning! And no matter how carefully you documented expenses and reported earnings, every business owner secretly frets over the liklihood of an IRS Audit!

The tax professionals at Neikirk, Mahoney & Smith, understand what you're going through and they stand ready to help you get through the process intact!

Need some help filing your business taxes? Give us a call today at 502-896-2999. Visit our website to learn more and we look forward to being of service!

Home office deduction

BY MICHAEL R. REDEMSKE, CPA

JANUARY 2012

With unemployment still near the highest rate in decades, it is not surprising to find many people working out of their homes. Now may be a good time to review the criteria for claiming a deduction for the business use of part of a person’s residence.
  Your home office must be used in a trade or business activity. You cannot take a deduction if you use your home for a profit-seeking activity that is not a trade or business. For example, if you use part of your home to manage your personal investments, you cannot take a home office deduction.
  The home office must be used regularly and exclusively for business. You must regularly use a room or other separately identifiable area of your home only for your business. You do not meet this requirement if you use the area for both business and personal purposes. For example, an attorney who writes legal briefs at the kitchen table cannot claim a home office deduction for the kitchen.
You do not have to meet the exclusive-use test if you use part of your home to store inventory or product samples or as a day care facility.
  Your home office must be one of the following:

• Your principal place of business. Your home office also will qualify as your principal place of business if you use it regularly for administrative activities and you have no other fixed location where you conduct substantial administrative activities; or
• A place to meet with patients, clients or customers in the normal course of your business.Using your home for occasional meetings and telephone calls is insufficient; or
• A separate structure not attached to the dwelling unit used for trade or business purposes.The structure does not have to be your principal place of business or a place where you meet patients, clients or customers. For example, John operates a floral shop in town. He grows plants in a greenhouse behind his home and sells them in his shop. He uses the greenhouse exclusively and regularly in his business. Even though it is not his principal place of business, because it is separate from his dwelling, he can deduct the expenses for its use.

  If you are an employee, you must use your home office for the convenience of your employer. If the employer does not require the employee to work from home and provides an office or work space elsewhere, a home office is likely to be considered a matter of the employee’s convenience and therefore not deductible.