PHOENIX – May 12, 2017 – The Internal Revenue Service (IRS) recently reminded small business owners who work from a home office that there are two options for claiming the Home Office Deduction. The Home Office Deduction is often overlooked by small business owners.
The IRS is highlighting a series of tips and resources available for small business owners.
- Regular method
The first option for calculating the 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. Self-employed taxpayers file Form 1040, Schedule C, Profit or Loss From Business (Sole Proprietorship), and compute this deduction on Form 8829, Expenses for Business Use of Your Home.
- Simplified method
The second option, the Simplified Method, reduces the paperwork and recordkeeping burden for small businesses. 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. There is a special calculation for daycare providers. Self-employed individuals claim the home office deduction on Form 1040, Schedule C, Line 30; farmers claim it on Schedule F, Line 32 and eligible employees claim it on Schedule A, Line 21.