Many homeowners are eligible to claim a deduction for business use of their home—commonly known as the home office deduction—when filing their taxes. Eligible taxpayers have the option to choose the simplified method when claiming the deduction, according to the Internal Revenue Service (IRS). The simplified method is designed to reduce the burden of recordkeeping, as well as paperwork, for small businesses. This optional deduction is capped at $1,500 per year, based on $5 a square foot for up to 300 square feet.
By selecting the simplified method, home-based businesses need only complete a short worksheet in the tax instructions and enter the result on their tax return. Normally, home-based businesses are required to fill out a 43-line form (Form 8829), calculating allocated expenses, depreciation and carryovers of unused deductions.
Self-employed individuals choosing the simplified method claim the home office deduction on Schedule C, Line 30; farmers claim it on Schedule F, Line 32; and eligible employees claim it on Schedule A, Line 21.
When choosing the simplified method, home-based businesses cannot depreciate the portion of their home used in a trade or business, but they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.
Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible. Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the business, still apply under the simplified method.
Further details on the home office deduction and the simplified method can be found in Publication 587 on IRS.gov.
Published with permission from RISMedia.