Richardson TX - Small Businesses and the Home Office Tax Deduction

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Education & Training with Bob Jablonsky & Associates

A common question that comes up with small business owners who visit our Richardson TX office is whether they can get a tax deduction for their Home Office. Today we’ll spend a little time discussing the Home Office Deduction for a small business owner who files on Schedule C of their tax return.

 

Before we move into the deduction for small business owners, one of the impacts of the Tax Reform Act of 2018 was that it took away the potential deduction as an employee. An employee who used the home office deduction took it as a miscellaneous itemized deduction. Beginning in 2018, there are no miscellaneous itemized deductions, so employees can no longer claim the deduction.

 

For small business owners, according to the IRS’s website, they can take the deduction if they use a portion of their home exclusively, and on a regular basis, for any of the following:

  • As the taxpayer’s main place of business.
  • As a place of business where the taxpayer meets patients, clients or customers. The taxpayer must meet these people in the normal course of business.
  • If it is a separate structure that is not attached to the taxpayer’s home. The taxpayer must use this structure in connection with their business.
  • A place where the taxpayer stores inventory or samples. This place must be the sole, fixed location of their business.
  • Under certain circumstances, the structure where the taxpayer provides day care services.

 

Two Options for the Home Office Deduction

  • The Regular Method in which the indirect expenses are calculated by dividing the space of the home office by the total space of the home. These are added to direct costs.  Allowable expenses include those listed in the next section.
  • With the simplified method, the taxpayer is permitted $5 a square foot up to 300 feet.

 

What Expenses Are Deductible Under the Regular Method?

  • Real estate taxes
  • Mortgage interest
  • Rent
  • Casualty losses
  • Utilities
  • Insurance
  • Depreciation
  • Repairs and Maintenance

There are limitations on some of these expenses and the disallowed expenses can be carried forward in most cases.

 

Two Options for the Home Office Deduction

 

The IRS permits two methods to Calulate the Home Office Deduction:

  • The Regular Method in which the indirect expenses are calculated by dividing the space of the home office by the total space of the home. These are added to direct costs.
  • With the simplified method, the taxpayer is permitted $5 a square foot up to 300 feet.

 

Form 8829 is used to calculate the Home Office Deduction and it flows to Schedule C on the taxpayer’s return.

 

Shareholders of S-Corporations

While an S-Corp Shareholder can no longer claim a deduction as an employee through itemized deductions, nor do they file a schedule C, they can use an Accountable Plan to reimburse the employee (you in this case) for expenses associated with the home office. This would be similar to be an employee of a large company and having expenses reimbursed.   To do so, the business must have a written accountable plan and the employee must have receipts and written support for the expenses.

 

Do you Need Help?

If you need help with the Home Office Deduction or need help with your taxes in general including help with tax problems, we’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at bob@jablonskyandassociates.

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Rainmaker
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Anthony Acosta - ALLATLANTACONDOS.COM
Harry Norman, REALTORS® - Atlanta, GA
Associate Broker

Good afternoon Bob Jablonsky 

Thank you for sharing the home office tax deduction information with us

Have a great day.

Jun 09, 2019 10:53 AM #1
Rainmaker
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Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is important information to share with real estate professionals.

Have an outstanding week.

Jun 09, 2019 01:51 PM #2
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Bob Jablonsky

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