The Often-Overlooked Home Office Business Deduction

From the Desk of Lauran L. Stevenson

The Often-Overlooked Home Office Business Deduction

As part of National Small Business Week (April 30-May 6), the IRS highlighted a series of tips and resources available for small business owners. One tip was about the Home Office Deduction, which is often overlooked by small business owners. Deductible expenses for business use of a home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs.

For small business owners who work from a home office, there are two options for claiming the Home Office Deduction; Regular Method and Simplified Method.

The first option for calculating Home Office Deduction is the “Regular Method.” This method requires computing the business use of the home by dividing the expenses of operating the home between personal and business use. Direct business expenses are fully deductible and the percentage of the home floor space used for business is assignable to indirect total expenses. If you file a Schedule C with your personal tax return you must compute this deduction on a separate from (Form 8829, Expenses for Business Use of Your Home).

The second option, the “Simplified Method”, has a prescribed rate of $5 a square foot for business use of the home. There is a maximum allowable deduction available based on up to 300 square feet. Choosing this option requires taxpayers to complete a short worksheet in the tax instructions and entering the result on the tax return. Self-employed individuals claim the home office deduction on Form 1040, Schedule C, Line 30; and eligible employees claim it on Schedule A, Line 21.