A home office is often a hub of productivity and learning for a family. If that same space is used exclusively for a business, however, there may be some available income tax return deductions. Filing IRS Form 8829 is one way to deduct the expenses of using a room in a residence to conduct meetings, store inventory, or keep records. Home office expenses can be deducted using Schedules A & C but with IRS Form 8829 you may be able to get more deductions and depreciate the value of your house.
Tax professionals can help taxpayers fill out the necessary forms and determine factors such as whether it is ok to use a home office for work and family or if it has to be completely dedicated to a business. For example, those who run a daycare in their homes may be able to deduct expenses from an area even if that space is not used exclusively for that business. Other companies have to keep their business space separate from living space.
In order to take this deduction, the home office should be a principal place where business is conducted or maintained. Administrative duties such as keeping books, setting up appointments, writing reports or emails done in the office on a regular basis can help qualify the home office for deduction with IRS Form 8829. Those storing inventory or samples of products at home must be retailers or wholesalers and must regularly use that space for storage. Seeing clients, customers or patients in a home office can also qualify it as a principal place of business.
Allowable deductions through IRS Form 8829 include percentages of rent, utilities, maintenance, depreciation, mortgage interest, real estate taxes, and casualty losses. The percentage of each category that can be deducted depends on how much of the home is dedicated to the business. This is calculated by dividing the square footage of the allotted space against the total square footage of the residence. Taxpayers running daycare facilities must also factor in the hours the space was used for business for that year.
Self-employed people and statutory employees need to fill out Schedule C in conjunction with IRS Form 8829 to attach to their returns. Standard company employees and partners fill out Schedule A instead and submit it with their return but do not fill out IRS Form 8829. Deductions cannot exceed the amount of the gross income of the business in a given year. Excess expenses can be deducted the next year.
As of this year, the IRS has simplified the manner in which these home office deductions are taken. However, house depreciation will no longer be taken into account. Additionally, mortgage interest, real estate taxes and casualty losses are now taken as itemized deductions on Schedule A. It is up to the taxpayer to decide which method is more beneficial to them in terms of deduction size. For help in calculating the amount of deductions that can be taken, or for answers to tax-related questions, taxpayers should speak with qualified tax professionals. Call today to get the information you need to maximize your tax deductions.