The home office deduction can help small business owners save money on their taxes. Taxpayers can take this deduction when they file their taxes if they use a portion of their home exclusively, and on a regular basis, for any of the following:
- As the taxpayer’s main place of business.
- As a place of business where the taxpayer meets patients, clients or customers. The taxpayer must meet these people in the normal course of business.
- If it is a separate structure that is not attached to the taxpayer’s home. The taxpayer must use this structure in connection with their business
- A place where the taxpayer stores inventory or samples. This place must be the sole, fixed location of their business.
- Under certain circumstances, the structure where the taxpayer provides day care services.
- Real estate taxes
- Mortgage interest
- Casualty losses
- Repairs and Maintenance
There are two options for figuring and claiming the home office deduction.
- Regular method: 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.
- Simplified method: The simplified method reduces the paperwork and recordkeeping for small businesses. The simplified method has a set rate that is capped at $1,500 per year, based on $5 a square foot for up to 300 square feet.
- Daycare providers complete a special worksheet, which is found in Publication 587.
- Self-employed individuals use Form 1040, Schedule C, Line 30 to claim deduction.
- Farmers claim the home office deduction on Schedule F, Line 32.
If all this seems complicated, please contact a GLM professional.