Home Office Expense
Candlefocus EditorThere are two alternatives for Individuals to calculate their Home Office Expense deductions: a Regular Method and a Simplified Method. The Regular Method runs through a calculation of total expenses divided per the ratio of household space used for business versus household space as a whole, providing for a more legitimate deduction. For instance, if the entire home was utilized for business, then all expenses can be deducted from the total income earned from the business.
The Simplified Method gives individuals the option to use the standard rate per square foot dedicated to business activities. The rate passes by $5 per square foot, and the use of this method is subject to certain limitations of an overall $1,500 deduction.
It is important to note that any expenses related to the business operation claimed on the deductions must be legitimate and necessary. Such include fees and utilities, service costs, leases and rent, computer equipment, furniture and office supplies, and even depreciation of the business’s fixtures (including part of the house dedicated to the business). Therefore, people should keep a detailed ledger of all expenses related to their operations in order to keep an organized record in case of an audit or adjustment.
By utilizing their Home Office Expense deductions, individuals can greatly reduce the amount of taxable income proportional to the amount of expenses claimed. Even small businesses can benefit from this deduction, and do not be afraid to take it as long as the expenses incurred inside the home office are entirely necessary and devoted to running the operations.