Small business owners may qualify for a home office deduction that will help them save money on their taxes, and benefit their bottom line.
Taxpayers can take this deduction if they use a portion of their home exclusively, and on a regular basis, for any of the following:
Deductible expenses for business use of a home include:
Certain expenses are limited to the net income of the business. These are known as allocable expenses. They include things such as utilities, insurance, and depreciation. While allocable expenses cannot create a business loss, they can be carried forward to the next year. If the taxpayer carries them forward, the expenses are subject to the same limitation rules.
There are two options for figuring and claiming the home office deduction.
This method requires dividing the above expenses of operating the home between personal and business use. Self-employed taxpayers file Form 1040, Schedule C, and compute this deduction on Form 8829.
The simplified method reduces the paperwork and recordkeeping for small businesses. The simplified method has a set rate of $5 a square foot for business use of the home. The maximum deduction allowed is based on up to 300 square feet.
There are special rules for certain business owners:
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