Category Archives: In-Home Office Tax Rules

What Are The Top Six Home Office Deductions?

IRS Talks About Home Office Deductions

If you are one of our clients, you know how we handle your home office deductions.  But for those who aren’t our clients – yet – here are some tips from the IRS that you might find useful.

Issue Number:IRS Tax Tip 2015-42

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify you can claim the deduction whether you rent or own your home. If you qualify for the deduction you may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction.

1.Regular and Exclusive Use. As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:

  • Your principal place of business, or
  • A place where you meet clients or customers in the normal course of business, or
  • A separate structure not attached to your home. Examples could include a garage or a studio.

2.Simplified Option. If you use the simplified option, you multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the criteria for who may claim a home office deduction.

3.Regular Method. If you use the regular method, the home office deduction includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.

4.Deduction Limit. If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.

5.Self-Employed. If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.

6.Employees. If you are an employee, you must meet additional rules to claim the deduction. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

For more on this topic, see Publication 587, Business Use of Your Home. You can view, download and print IRS tax forms and publications on IRS.gov/forms anytime.

If you found this Tax Tip helpful, please share it through your social media platforms. A great way to get tax information is to use IRS Social Media. You can also subscribe to IRS Tax Tips or any of our e-news subscriptions.

Additional IRS Resources:

US-TaxLaws is your best source for professional tax preparation and/or financial consulting services.  We make your tax dollars work for you. Find out how we can help you.  Give us a call at 619-589-8680. 

Tips to Help You Keep What You Earn in 2015

Client Testimonials 2015

Many of our clients are in-home businesses. Entrepreneurs, start-ups, small businesses, child care providers, independent professionals, operators and so on.  What makes US-TaxLaws.com different is we’re more than taxes.  We’re about financial health.  We help our clients make their tax dollars work for them. They’re going to have to pay taxes… the question is how much and why. Continue reading →

Important Tax Date – February 28

FOR ALL BUSINESSES – TAX FILING INFORMATION

CAUTION TAX FORMS NEEDED!File information returns (for example, Forms 1099 for certain payments you made during 2013.  There are different forms for different types of payments. Use a separate Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to summarize and transmit the forms for each type of payment. See the General Instructions for Certain Information Returns for information on what payments are covered, how much the payment must be before a return is required, which form to use, and extensions of time to file.

If you file Forms 1097, 1098, 1099, 3921, 3922, or W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms generally remains January 31.

All businesses.

Give annual information statements to recipients of certain payments you made during 2013. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. Payments that may be covered include the following.

  • Cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish.
  • Compensation for workers who are not considered employees (including fishing boat proceeds to crew members).
  • Dividends and other corporate distributions.
  • Interest.
  • Rent.
  • Royalties.
  • Payments of Indian gaming profits to tribal members.
  • Profit-sharing distributions.
  • Retirement plan distributions.
  • Original issue discount.
  • Prizes and awards.
  • Medical and health care payments.
  • Debt cancellation (treated as payment to debtor).
  • Cash payments over $10,000. See the instructions for Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

This information is available in IRS Publication 509 – Tax Calendars for Use in 2014

How Safe Are Your Tax Records?

PROTECT YOUR RECORDS … FOR PEACE OF MIND

If you are using electronic records – stored remotely and retrievable – great!  But what about those who still keep paper records in a home-office, garage, basement, or attic?  Well, if you are going to keep your tax records in  your home, make sure they won’t be destroyed in an unexpected catastrophe like a fire or flood.  While the IRS isn’t heartless … if they come looking for your records, you will wish you have kept them safer. Continue reading →

Use of Home For Two or More Businesses ?

Did you know the same home office can be the principal place of business for two or more separate business activities?  

According to Publication 587, Cat. No. 15154T : January 5, 2013 – yes it can be, but whether it qualifies as the principal place of business for two or more businesses is evaluated by a set of criteria:

  • The principal place of business for one or more of your trades or businesses,
  • As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses,
  • If your home office is a separate structure, in connection with one or more of your trades or businesses. Continue reading →

Taxes, Death… and Marriage?

Marriage – tax advantage?  Maybe yes, maybe no.

Marriage can have a tax-rate advantage, but it depends on the incomes.  Did you know you can actually save tax money if one spouse is making a lot less than the other?  It’s true.  The tax bill of the high-income earner can almost (if not totally) be cancelled out.  Continue reading →

Personal Home? Tax Home? What’s the Difference?

Did you know that your personal home is not your tax home? 

“Your tax deductions, tax strategies, and tax records hinge on the following federal income tax defined terms: Personal Home, Tax Home, Business Travel, Business Transportation.”¹

Do you know the definition and differences?   Continue reading →

Advantages to having a home-based business

The United States tax law encourages business activity by offering many tax benefits to entrepreneurs. Specifically, the tax code provides advantages to small business owners, depending on how you choose to organize your business. Running a home business has its advantages, as home-based businesses qualify for several additional deductions and tax credits. By maximizing these deductions, the home business owner can reduce his tax liability. Continue reading →

Is the Home Office Tax Deduction a “Red Flag” for an IRS Audit?

The Bradford Tax Institute conducted a polling question during a continuing education webinar for CPAs and enrolled agents (EAs) last October.  The attendees had to answer it in order to prove attendance.

The question was “Do this: Think of yourself and how many clients you have who have claimed the home-office deduction for each of the last three years.  Now with that number of clients in mind, what percentage have been audited by the IRS in the last three years?”

  • No audits at all – 73 percent
  • Fewer than 5 percent audited – 22 percent
  • Five to 10 percent – 5 percent

Conclusion: There is no premise that declaring a home-office tax deduction triggers a red flag with the IRS.  In fact, the numbers show just the opposite. And, since the IRS hasn’t published its list of “flag” colors – for audits or otherwise, it seems they remain a secret.

 

New Home Office Tax Rules for 2013

The IRS has released Revenue Procedure 2013-13 announcing a more streamlined method for taxpayer home offices to offset the tax reporting structure that even the IRS considers “complex and burdensome”.

Beginning with 2013, qualified taxpayers may now use an optional “safe harbor” method to claim an office in home, limited to $1,500.  This method only looks as the square footage used, and allows a deduction of $5 per square foot (up to 300 ft.).  Recordkeeping of actual expenses, and claiming of depreciation, is not required, and the Schedule A for mortgage interest and property taxes remain unchanged. 

However, while this may (at first glance) sound like a benefit to the taxpayer, it is worth talking this over with your tax preparer to determine whether the safe harbor method makes sense for you and your home business.