Simplified Home Office Deduction

Having a home based business can be a good way to provide extra income to a family. But when it comes to taxes many home based business owners are confused by the tax laws. One such area tax payers can claim as a business deduction is for the space used for business purposes within the home. This is also known as the home office deduction. The simplified home office deduction makes it easier to claim this deduction.

Simplified Home Office Deduction | #taxes

According to the IRS more than 3 million taxpayers claim deductions for more than $9 billion for business use of a home. This home office deduction can be claimed in 2 ways.

The first,  requires businesses  to use Form 8829. This form includes complex calculations which designates expenses, depreciation, and carryover of unused deduction.

The second, is a more simplified method. It requires only the completion of a short worksheet, then the results are entered on the taxpayers return.

Schedules to Use for the Simplified Home Office Deduction

  • Self-employe – Schedule C
  • Farmers – Schedule F
  • Eligible Employees – Schedule A

This simplified optional method was introduced in 2013 as a way to reduce paperwork, and ease the bookkeeping difficulties of small business owners.

What you Need to Know about the Home Office Deductions

  • The optional simplified deduction is capped at $1500 per year.
  • It is based upon $5 per square foot for space used up to 300 square feet.
  • The homeowner can still claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deduction, on Schedule A. It is not necessary to allocate the difference in space used for claiming mortgage interest.
  • Homeowners cannot depreciate the portion of their home claimed for business use.
  • Expenses for business unrelated to home ownership, such as advertising, supplies and employee wages are still fully deductible.
  • Still applicable are the restrictions that the home office is used regularly and exclusively for income derived from the business.  This requires that a home office be used regularly and exclusively for business.

Do you need assistance figuring out your allowable home based business deductions? Give us a call to schedule your appointment, 740•374•6942.

This information is not intended as legal or tax advice. Cowdery Tax and its representatives does not offer legal or tax advice. We offer services for business bookkeeping, payroll, tax payments, and personal tax filings. We share information that is publicly available. Tax laws may change with or without notice that may alter or change the information contained in this publication.