Deducting Business use of Home

Dear M & M:

 

Someone told me there was a standard rate one could use when deducting business use of your home. Can you please explain?

 

– Mary

Dear Mary: Business use of your home.

There is a ruling called the “optional safe harbor method” that is available that one can use when calculating qualified deductions when using your home for business. However, it is strongly recommended that you contact a qualified tax accountant or CPA knowledgeable in the rules and regulations regarding the use of your home in business so you can take advantage of every credit you are entitled to take correctly.  The following is directly from the IRS web site on business use of your home:

“If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.  To qualify to claim expenses for the business use of your home, you must meet both of the following tests.

The business part of your home must be used exclusively and regularly for your trade or business. The business part of your home must be: Your principal place of business or a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or a separate structure (not attached to your home) used in connection with your trade or business.

You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility.  Your home office qualifies as your principal place of business if you meet the following requirements.

You use the office exclusively and regularly for administrative or management activities of your trade or business. You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.  If you have more than one business location, determine your principal place of business based on the following factors.

The relative importance of the activities performed at each location. If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year.

This method is an alternative to the calculation, allocation, and substantiation of actual expenses.  The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet.” –IRS

As you can sometimes areas like regarding the business use of your home has many exclusions and exemptions. One wants to make certain they are following the rules correctly. As mentioned previously it is highly recommended you connect with and use a competent CPA or tax accountant knowledgeable in this area of business.

Mileage deductions for the business use of your personal vehicle are another area all business owners should look into. The following link will connect you to additional information regarding the use of your home in your business and allowable deductions from the IRS. http://www.irs.gov/publications/p535/ch01.html#en_US_2013_publink1000312995

-M&M

To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation(EDF) at 520-458-6948 or email  hollism@svedf.org

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